ARCHROCK, INC.
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
| (Mark One) | ||
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For fiscal year ended December 31, 2009 | ||
|
or
|
||
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to . | ||
Commission file
no. 001-33666
Exterran Holdings,
Inc.
(Exact name of registrant as
specified in its charter)
| Delaware | 74-3204509 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
16666 Northchase Drive, Houston, Texas 77060
(Address of principal executive offices, zip code)
(Address of principal executive offices, zip code)
(281) 836-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class
|
Name of Each Exchange in Which Registered
|
|
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Common Stock, $0.01 par value
|
New York Stock Exchange |
Securities registered pursuant to 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes
o
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
|
Large accelerated filer
þ
|
Accelerated filer o |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
The aggregate market value of the common stock of the registrant
held by non-affiliates as of June 30, 2009 was
$675,749,737. For purposes of this disclosure, common stock held
by persons who hold more than 5% of the outstanding voting
shares and common stock held by executive officers and directors
of the registrant have been excluded in that such persons may be
deemed to be “affiliates” as that term is defined
under the rules and regulations promulgated under the Securities
Act of 1933, as amended. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
Number of shares of the common stock of the registrant
outstanding as of February 12, 2010: 62,515,788 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for
the 2010 Meeting of Stockholders, which is expected to be filed
with the Securities and Exchange Commission within 120 days
after December 31, 2009, are incorporated by reference into
Part III of this
Form 10-K.
TABLE OF
CONTENTS
i
Table of Contents
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements”
intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical fact
contained in this report are forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, including, without limitation, statements
regarding our business growth strategy and projected costs;
future financial position; the sufficiency of available cash
flows to fund continuing operations; the expected amount of our
capital expenditures; future revenue, gross margin and other
financial or operational measures related to our business and
our primary business segments; the future value of our
equipment; and plans and objectives of our management for our
future operations. You can identify many of these statements by
looking for words such as “believes,”
“expects,” “intends,” “projects,”
“anticipates,” “estimates” or similar words
or the negative thereof.
Such forward-looking statements are subject to various risks and
uncertainties that could cause actual results to differ
materially from those anticipated as of the date of this report.
Although we believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions,
no assurance can be given that these expectations will prove to
be correct.
These forward-looking statements are also affected by the risk
factors described below in Part I, Item 1A (“Risk
Factors”) and those set forth from time to time in our
filings with the Securities and Exchange Commission
(“SEC”), which are available through our website at
www.exterran.com
and through the SEC’s
Electronic Data Gathering and Retrieval System
(“EDGAR”) at
www.sec.gov
. Important
factors that could cause our actual results to differ materially
from the expectations reflected in these forward-looking
statements include, among other things:
| • | conditions in the oil and gas industry, including a sustained decrease in the level of supply or demand for natural gas and the impact on the price of natural gas, which could cause a decline in the demand for our compression and oil and natural gas production and processing equipment and services; | |
| • | our reduced profit margins or the loss of market share resulting from competition or the introduction of competing technologies by other companies; | |
| • | the success of our subsidiaries, including Exterran Partners, L.P. (along with its subsidiaries, the “Partnership”); | |
| • | changes in economic or political conditions in the countries in which we do business, including civil uprisings, riots, terrorism, kidnappings, the taking of property without fair compensation and legislative changes; | |
| • | changes in currency exchange rates and restrictions on currency repatriation; | |
| • | the inherent risks associated with our operations, such as equipment defects, malfunctions and natural disasters; | |
| • | the risk that counterparties will not perform their obligations under our financial instruments; | |
| • | the financial condition of our customers; | |
| • | our ability to timely and cost-effectively obtain components necessary to conduct our business; | |
| • | employment and workforce factors, including our ability to hire, train and retain key employees; | |
| • | our ability to implement certain business and financial objectives, such as: |
| • | international expansion; | |
| • | sales of additional United States of America (“U.S.”) contract operations contracts and equipment to the Partnership; |
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| • | timely and cost-effective execution of projects; | |
| • | integrating acquired businesses; | |
| • | generating sufficient cash; and | |
| • | accessing the capital markets at an acceptable cost; |
| • | liability related to the use of our products and services; | |
| • | changes in governmental safety, health, environmental and other regulations, which could require us to make significant expenditures; and | |
| • | our level of indebtedness and ability to fund our business. |
All forward-looking statements included in this report are based
on information available to us on the date of this report.
Except as required by law, we undertake no obligation to
publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise. All
subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements
contained throughout this report.
| Item 1. | Business |
We were incorporated on February 2, 2007 as Iliad Holdings,
Inc., a wholly-owned subsidiary of Universal Compression
Holdings, Inc. (“Universal”), and thereafter changed
our name to Exterran Holdings, Inc. (“Exterran”). On
August 20, 2007, Universal and Hanover Compressor Company
(“Hanover”) merged into our wholly-owned subsidiaries,
and we became the parent entity of Universal and Hanover.
Immediately following the completion of the merger, Universal
merged with and into us. Hanover was determined to be the
acquirer for accounting purposes and, therefore, our financial
statements reflect Hanover’s historical results for periods
prior to the merger date. We have included the financial results
of Universal’s operations in our consolidated financial
statements beginning August 20, 2007. References to
“our,” “we” and “us” refer to
Hanover for periods prior to the merger date and to Exterran for
periods on or after the merger date. References to “North
America” when used in this report refer to the
U.S. and Canada. References to “International”
and variations thereof when used in this report refer to the
world excluding North America. For more information regarding
the merger, see Note 3 to the Consolidated Financial
Statements included in Part IV, Item 15
(“Financial Statements”) of this report.
As a result of the merger between Hanover and Universal, each
outstanding share of common stock of Universal was converted
into one share of Exterran common stock and each outstanding
share of Hanover common stock was converted into
0.325 shares of Exterran common stock. All share and per
share amounts in this report have been retroactively adjusted to
reflect the conversion ratio of Hanover common stock for all
periods presented.
General
We are a global market leader in the full service natural gas
compression business and a premier provider of operations,
maintenance, service and equipment for oil and natural gas
production, processing and transportation applications. Our
global customer base consists of companies engaged in all
aspects of the oil and natural gas industry, including large
integrated oil and natural gas companies, national oil and
natural gas companies, independent producers and natural gas
processors, gatherers and pipelines. We operate in three primary
business lines: contract operations, fabrication and aftermarket
services. In our contract operations business line, we own a
fleet of natural gas compression equipment and crude oil and
natural gas production and processing equipment that we utilize
to provide operations services to our customers. In our
fabrication business line, we fabricate and sell equipment
similar to the equipment that we own and utilize to provide
contract operations to our customers. We also fabricate the
equipment utilized in our contract operations services. In
addition, our fabrication business line provides engineering,
procurement and construction services primarily related to the
manufacturing of critical process equipment for refinery and
petrochemical facilities, the construction of tank farms and the
construction of evaporators and brine heaters for desalination
plants. In
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our Total Solutions projects, we provide the engineering design,
project management, procurement and construction services
necessary to incorporate our products into complete production,
processing and compression facilities. Total Solutions products
are offered to our customers on a contract operations or on a
sale basis. In our aftermarket services business line, we sell
parts and components and provide operations, maintenance,
overhaul and reconfiguration services to customers who own
compression, production, processing, gas treating and other
equipment.
Our products and services are essential to the production,
processing, transportation and storage of natural gas and are
provided primarily to energy producers and distributors of oil
and natural gas. Our geographic business unit operating
structure, technically experienced personnel and high-quality
contract operations fleet allow us to provide reliable and
timely customer service.
We are the indirect majority owner of the Partnership, a master
limited partnership that provides natural gas contract
operations services to customers throughout the U.S. As of
December 31, 2009, public unitholders held a 34% ownership
interest in the Partnership and we owned the remaining equity
interest, including the general partner interest and all
incentive distribution rights. The general partner of the
Partnership is our subsidiary and we consolidate the financial
position and results of operations of the Partnership. It is our
intention for the Partnership to be the primary vehicle for the
long-term growth of our U.S. contract operations business
and for us to continue to contribute U.S. contract
operations customer contracts and equipment to the Partnership
over time in exchange for cash, the Partnership’s
assumption of our debt
and/or
our
receipt of additional interests in the Partnership. As of
December 31, 2009, the Partnership owned a fleet of 3,401
compressor units comprising approximately 1,304,000 horsepower,
or 31% (by available horsepower) of our and the
Partnership’s combined total U.S. horsepower.
Industry
Overview
Natural
Gas Compression
Natural gas compression is a mechanical process whereby the
pressure of a given volume of natural gas is increased to a
desired higher pressure for transportation from one point to
another; compression is essential to the production and
transportation of natural gas. Compression is typically required
several times during the natural gas production and
transportation cycle, including: (1) at the wellhead;
(2) throughout gathering and distribution systems;
(3) into and out of processing and storage facilities; and
(4) along intrastate and interstate pipelines.
| • | Wellhead and Gathering Systems — Natural gas compression that is used to transport natural gas from the wellhead through the gathering system is considered “field compression.” Compression at the wellhead is utilized because, at some point during the life of natural gas wells, reservoir pressures typically fall below the line pressure of the natural gas gathering or pipeline system used to transport the natural gas to market. At that point, natural gas no longer naturally flows into the pipeline. Compression equipment is applied in both field and gathering systems to boost the pressure levels of the natural gas flowing from the well allowing it to be transported to market. Changes in pressure levels in natural gas fields require periodic changes to the size and/or type of on-site compression equipment. Additionally, compression is used to reinject natural gas into producing oil wells to maintain reservoir pressure and help lift liquids to the surface, which is known as secondary oil recovery or natural gas lift operations. Typically, these applications require low- to mid-range horsepower compression equipment located at or near the wellhead. Compression equipment is also used to increase the efficiency of a low-capacity natural gas field by providing a central compression point from which the natural gas can be produced and injected into a pipeline for transmission to facilities for further processing. | |
| • | Pipeline Transportation Systems — Natural gas compression that is used during the transportation of natural gas from the gathering systems to storage or the end user is referred to as “pipeline compression.” Natural gas transported through a pipeline loses pressure over the length of the pipeline. Compression is staged along the pipeline to increase capacity and boost pressure to overcome the |
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| friction and hydrostatic losses inherent in normal operations. These pipeline applications generally require larger horsepower compression equipment (1,000 horsepower and higher). |
| • | Storage Facilities — Natural gas compression is used in natural gas storage projects for injection and withdrawals during the normal operational cycles of these facilities. | |
| • | Processing Applications — Compressors may also be used in combination with natural gas production and processing equipment and to process natural gas into other marketable energy sources. In addition, compression services are used for compression applications in refineries and petrochemical plants. |
Many producers, transporters and processors outsource their
compression services due to the benefits and flexibility of
contract compression. Changing well and pipeline pressures and
conditions over the life of a well often require producers to
reconfigure or replace their compressor units to optimize the
well production or gathering system efficiency.
We believe outsourcing compression operations to compression
service providers such as us offers customers:
| • | the ability to efficiently meet their changing compression needs over time while limiting the underutilization of their existing compression equipment; | |
| • | access to the compression service provider’s specialized personnel and technical skills, including engineers and field service and maintenance employees, which generally leads to improved production rates and/or increased throughput; | |
| • | the ability to increase their profitability by transporting or producing a higher volume of natural gas through decreased compression downtime and reduced operating, maintenance and equipment costs by allowing the compression service provider to efficiently manage their compression needs; and | |
| • | the flexibility to deploy their capital on projects more directly related to their primary business by reducing their compression equipment and maintenance capital requirements. |
The international compression market is comprised primarily of
large horsepower compressors. A significant portion of this
market involves comprehensive projects that require the design,
fabrication, delivery, installation, operation and maintenance
of compressors and related natural gas treatment and processing
equipment by the contract operations service provider.
Production
and Processing Equipment
Crude oil and natural gas are generally not marketable as
produced at the wellhead and must be processed or treated before
they can be transported to market. Production and processing
equipment is used to separate and treat oil and natural gas as
it is produced to achieve a marketable quality of product.
Production processing typically involves the separation of oil
and natural gas and the removal of contaminants. The end result
is “pipeline” or “sales” quality oil and
natural gas. Further processing or refining is almost always
required before oil or natural gas is suitable for use as fuel
or feedstock for petrochemical production. Production processing
normally takes place in the “upstream” and
“midstream” markets, while refining and petrochemical
processing is referred to as the “downstream” market.
Wellhead or upstream production and processing equipment
includes a wide and diverse range of products.
The standard production and processing equipment market tends to
be somewhat commoditized, with sales following general industry
trends of oil and gas production. We fabricate and stock
standard production equipment based on historical product mix
and expected customer purchases. The custom equipment market is
driven by global economic trends, and the specifications of
equipment that is purchased can vary significantly. Technology,
engineering capabilities, project management, available
manufacturing space and quality control standards are the key
drivers in the custom equipment market.
Market
Conditions
We believe that the fundamental force driving the demand for
natural gas compression and production and processing equipment
over the past decade has been the growing global consumption of
natural gas and its
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byproducts. As more natural gas is consumed, the demand for
compression and production and processing equipment generally
increases. In addition, we expect the demand for natural gas and
natural gas byproducts to increase over the long-term, and to
result in additional demand for compression and production and
processing equipment and related services.
Although natural gas has historically been a more significant
source of energy in the U.S. than in the rest of the world,
the U.S. Energy Information Administration
(“EIA”) reports that natural gas consumption outside
of the U.S. grew 44% from 1998 through 2008. Despite this
growth in energy demand, most international energy markets have
historically lacked the infrastructure necessary to either
transport natural gas to markets or consume it locally; thus,
natural gas historically has often been flared at the wellhead.
We believe that over the long-term demand for natural gas
infrastructure in international markets will increase. This
anticipated increase in demand for infrastructure is due to a
projected increase in demand for natural gas, recent technology
advances, including liquefied natural gas (or LNG) and
gas-to-liquids, which make the transportation of natural gas
without pipelines more economical, environmental legislation
prohibiting flaring, and the construction of numerous natural
gas-fueled power plants built to meet international energy
demand.
While natural gas compression and production and processing
equipment typically must be engineered to meet unique customer
specifications, the fundamental technology of such equipment has
not been subject to significant change.
Natural gas consumption in the U.S. for the twelve months
ended November 30, 2009 decreased by approximately 2% over
the twelve months ended November 30, 2008, is expected to
increase by 0.4% in both 2010 and 2011 and is expected to
increase by an average of 0.7% per year until 2030, according to
the EIA. We believe the outlook for natural gas compression in
the U.S. will continue to benefit from the aging of
producing natural gas fields that will require more compression
to continue producing the same volume of natural gas and from
increased production from unconventional sources, including
coalbeds, shales and tight sands.
Total natural gas consumption worldwide is projected to increase
by an average of 2.4% per year until 2030, according to the EIA.
We believe this projected increase in consumption will
positively impact the market for natural gas compression in
areas outside the U.S. as infrastructure will need to be
built to accommodate such growth. Additionally, we believe
fabrication of production and processing equipment will increase
over time to support the infrastructure required to meet this
increasing demand.
Our critical process equipment business benefited from strong
energy markets in 2007 and early 2008. However, the decrease in
the price of oil beginning in the second half of 2008 and the
reductions in global economic activity have led to a reduction
in our fabrication backlog.
We also construct evaporators and brine heaters for desalination
plants and tank farms primarily for use in North Africa and the
Middle East. Demand for our evaporators and brine heaters for
desalination plants is primarily driven by population growth,
improvements in the standard of living and investment in
infrastructure. We expect continued investment in these
projects, and therefore demand for the equipment, in the regions
we serve to increase in the next few years. However, the
reductions in global economic activity led to a reduction in our
backlog related to these projects during 2009. As industry
capital spending declined in 2009, our fabrication business
segment experienced a reduction in demand. This decline in
demand for our fabrication products has led to a reduction in
our fabrication backlog and revenue, and continued reductions in
industry capital spending may further reduce our fabrication
backlog and revenue. Our reduction in fabrication backlog has
also been driven by shorter lead times on delivery of major
components from our suppliers and, in turn, our lead times in
delivering our products to customers. These conditions are also
expected to further negatively impact our North America contract
operations business segment, although we believe the effects
could be less severe on that business because it is more closely
tied to natural gas production than drilling activities and,
therefore, it has historically experienced more stable demand
than that for certain other energy service products and services.
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Operations
Business
Segments
Our revenues and income are derived from four business segments:
| • | North America Contract Operations. Our North America contract operations segment primarily provides natural gas compression and production and processing services to meet specific customer requirements utilizing Exterran-owned assets within the U.S. and Canada. | |
| • | International Contract Operations. Our international contract operations segment provides substantially the same services as our North America contract operations segment except it services locations outside the U.S. and Canada. Services provided in our international contract operations segment often include engineering, procurement and on site construction of large natural gas compression stations and/or crude oil or natural gas production and processing facilities. | |
| • | Aftermarket Services. Our aftermarket services segment provides a full range of services to support the surface production, compression and processing needs of customers, from parts sales and normal maintenance services to full operation of a customer’s owned assets. | |
| • | Fabrication. Our fabrication segment involves (i) design, engineering, installation, fabrication and sale of natural gas compression units and accessories and equipment used in the production, treating and processing of crude oil and natural gas; and (ii) engineering, procurement and construction services primarily related to the manufacturing of critical process equipment for refinery and petrochemical facilities, the construction of tank farms and the construction of evaporators and brine heaters for desalination plants. |
For financial data relating to our business segments or
geographic regions that accounted for 10% or more of
consolidated revenue in any of the last three fiscal years, see
Part II, Item 7 (“Management’s Discussion
and Analysis of Financial Condition and Results of
Operations”) and Note 23 to the Financial Statements.
Compressor
Fleet
The size and horsepower of our natural gas compressor fleet on
December 31, 2009 is summarized in the following table:
|
Number
|
Aggregate
|
% of
|
||||||||||
|
Range of Horsepower Per Unit
|
of Units | Horsepower | Horsepower | |||||||||
|
0 – 200
|
5,386 | 591,151 | 11 | % | ||||||||
|
201 – 500
|
2,658 | 801,361 | 14 | % | ||||||||
|
501 – 800
|
905 | 557,416 | 10 | % | ||||||||
|
801 – 1,100
|
699 | 675,904 | 12 | % | ||||||||
|
1,101 – 1,500
|
1,470 | 1,981,200 | 36 | % | ||||||||
|
1,501 and over
|
479 | 948,177 | 17 | % | ||||||||
|
Total
|
11,597 | 5,555,209 | 100 | % | ||||||||
Over the last several years, we have undertaken efforts to
standardize our compressor fleet around major components and key
suppliers. The standardization of our fleet:
| • | enables us to minimize our fleet operating costs and maintenance capital requirements; | |
| • | enables us to reduce inventory costs; | |
| • | facilitates low-cost compressor resizing; and | |
| • | allows us to develop improved technical proficiency in our maintenance and overhaul operations, which enables us to achieve high run-time rates while maintaining low operating costs. |
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Contract
Operations — North America and
International
We provide comprehensive contract operations services, which
include our provision at the customer’s location of our
personnel, equipment, tools, materials and supplies necessary to
provide the amount of natural gas compression, production or
processing service for which the customer has contracted. Based
on the operating specifications at the customer’s location
and the customer’s unique needs, these services include
designing, sourcing, owning, installing, operating, servicing,
repairing and maintaining equipment to provide these services to
our customers. We also provide contract water management and
processing services, primarily to the coalbed methane industry.
When providing contract compression services, we work closely
with a customer’s field service personnel so that the
compression services can be adjusted to efficiently match
changing characteristics of the reservoir and the natural gas
produced. We routinely repackage or reconfigure a portion of our
existing fleet to adapt to our customers’ compression
services needs. We utilize both slow and high speed
reciprocating compressors driven either by internal combustion
engines or electric motors. We also utilize rotary screw
compressors for specialized applications.
Our equipment is maintained in accordance with established
maintenance schedules. These maintenance procedures are updated
as technology changes and as our operations group develops new
techniques and procedures. In addition, because our field
technicians provide maintenance on our contract operations
equipment, they are familiar with the condition of our equipment
and can readily identify potential problems. In our experience,
these maintenance procedures maximize equipment life and unit
availability, minimize avoidable downtime and lower the overall
maintenance expenditures over the equipment life. Generally,
each of our compressor units undergoes a major overhaul once
every three to seven years, depending on the type and size
of the unit.
We also provide contract production and processing services,
similar to the contract compression services described above,
utilizing our fleet of natural gas production and processing
equipment. In Total Solutions projects, we provide the
engineering design, project management, procurement and
construction services necessary to incorporate our products into
complete production, processing and compression facilities.
Total Solutions products are offered to our customers on a
contract operations or on a sale basis.
We believe that our aftermarket services and fabrication
businesses, described below, provide us with opportunities to
cross-sell our contract operations services.
Our customers typically contract for our services on a
site-by-site
basis for a specific monthly rate that is generally adjusted
only if we fail to operate in accordance with the contract
requirements. At the end of the initial term, which in North
America is typically between six and twelve months, contract
operations services generally continue until terminated by
either party with 30 days advance notice. Our customers
generally are required to pay our monthly service fee even
during periods of limited or disrupted natural gas flows, which
enhances the stability and predictability of our cash flows.
Additionally, because we do not take title to the natural gas we
compress, process or treat and because the natural gas we use as
fuel for our compressors and other equipment is supplied by our
customers, we have limited direct exposure to commodity price
fluctuations.
We maintain field service locations in the natural gas producing
regions of the U.S. and Canada from which we can service
and overhaul our own compressor fleet to provide contract
operations services to our customers. Many of these locations
are also utilized to provide aftermarket services to our
customers, as described in more detail below. As of
December 31, 2009, our North America contract operations
segment provided contract operations services primarily using a
fleet of 10,433 natural gas compression units that had an
aggregate capacity of approximately 4,321,000 horsepower. For
the year ended December 31, 2009, 26% of our total revenue
was generated from North America contract operations.
Our international operations are focused on markets that require
both large horsepower compressor applications and full
production and processing facilities. Our international contract
operations segment typically engages in longer-term contracts
and more comprehensive projects than our North America contract
operations segment. International projects often require us to
provide complete engineering, design and
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installation services and a greater investment in equipment,
facilities and related installation costs. These larger projects
may include several compressor units on one site or entire
facilities designed to process and treat oil or natural gas to
make it suitable for end use. As of December 31, 2009, our
international contract operations segment provided contract
operations services using a fleet of 1,164 units that had
an aggregate capacity of approximately 1,234,000 horsepower and
a fleet of production and processing equipment. For the year
ended December 31, 2009, 14% of our total revenue was
generated from international contract operations.
Aftermarket
Services
Our aftermarket services segment sells parts and components and
provides operation, maintenance, overhaul and reconfiguration
services to customers who own compression, production, treating
and oilfield power generation equipment. We believe that we are
particularly well qualified to provide these services because
our highly experienced operating personnel have access to the
full range of our compression services, production and
processing equipment and oilfield power generation equipment and
facilities. For the year ended December 31, 2009, 11% of
our total revenue was generated from aftermarket services.
Fabrication
Compressor
and Accessory Fabrication
We design, engineer, fabricate, install and sell skid-mounted
natural gas compression units and accessories to meet standard
or unique customer specifications. We sell this compression
equipment primarily to major and independent oil and natural gas
producers as well as national oil and natural gas companies in
the countries in which we operate.
Generally, compressors sold to third parties are assembled
according to each customer’s specifications. We purchase
components for these compressors from third party suppliers
including several major engine, compressor and electric motor
manufacturers in the industry. We also sell pre-packaged
compressor units designed to our standard specifications. For
the year ended December 31, 2009, 22% of our total revenue
was generated from our compressor and accessory fabrication
business line.
As of December 31, 2009, our compressor and accessory
fabrication backlog was $296.9 million, compared to
$395.5 million at December 31, 2008. At
December 31, 2009, all future revenue related to our
compressor and accessory fabrication backlog is expected to be
recognized before December 31, 2010.
Production
and Processing Equipment Fabrication
We design, engineer, fabricate, install and sell a broad range
of oil and natural gas production and processing equipment
designed to heat, separate, dehydrate and condition crude oil
and natural gas to make such products suitable for end use. Our
products include line heaters, oil and natural gas separators,
glycol dehydration units, dewpoint control plants, water
treatment, mechanical refrigeration and cryogenic plants and
skid-mounted production packages designed for both onshore and
offshore production facilities. We sell standard production and
processing equipment primarily into U.S. markets, which is
used for processing wellhead production from onshore or
shallow-water offshore platform production. In addition, we sell
custom-engineered, built-to-specification production and
processing equipment, which typically consists of much larger
equipment packages than standard equipment, and is generally
used in much larger scale production operations. These large
projects at times are in remote areas, such as deepwater
offshore sites and in developing countries with limited oil and
natural gas industry infrastructure. To meet most
customers’ rapid response requirements and minimize
customer downtime, we maintain an inventory of standard products
and long delivery components used to manufacture our customer
specification products. We also provide engineering, procurement
and construction services primarily related to the manufacturing
of critical process equipment for refinery and petrochemical
facilities, the construction of tank farms and the construction
of evaporators and brine heaters for desalination plants. For
the year ended December 31, 2009, 27% of our total revenue
was generated from our production and processing equipment
fabrication business line.
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As of December 31, 2009, our production and processing
equipment fabrication backlog was $515.6 million, compared
to $732.7 million at December 31, 2008. Typically, we
expect our production and processing equipment backlog to be
produced within a three to 36 month period. At
December 31, 2009, approximately $68.0 million of
future revenue related to our production and processing
equipment backlog was expected to be recognized after
December 31, 2010.
Business
Strategy
We intend to continue to capitalize on our competitive strengths
to meet our customers’ needs through the following key
strategies:
| • | Continue to develop our product lines and service offerings. We have built our leading market position through our strengths in comprehensive contract operations, compressor, production and processing equipment fabrication and aftermarket services and the combination of more than one of these products or services in our Total Solutions projects. We continue to see opportunities, especially in international markets driven more by our ability to deliver a Total Solutions product offering rather than a single product. We believe that this capability will enable us to capitalize on and expand our existing client relationships, develop new client relationships and territories, and enhance our revenue and returns from each individual project. Throughout the world, we are focusing our efforts on improving our service delivery processes and quality. | |
| • | Expand international presence. International markets continue to represent the greatest growth opportunity for our business, due in large part to the fact that over 75% of the world’s natural gas production resides in markets outside North America. We believe that many of these markets are underserved in the area of the products and services we offer, and that gas production in these regions will continue to grow at a pace greater than that of North America. In addition, we typically see higher returns and margins in international markets relative to North America due to the more complex equipment and Total Solutions applications. We intend to allocate additional resources toward international markets. | |
| • | Utilize the Partnership as our primary vehicle for the long-term growth of our U.S. contract operations business. We intend for the Partnership to be the primary vehicle for the long-term growth of our U.S. contract operations business. As we and the Partnership believe that over time the Partnership has a lower cost of capital due to its partnership structure, we intend to offer the Partnership the opportunity to purchase the remainder of our U.S. contract operations business over time, but are not obligated to do so. Such transactions would depend on, among other things, market and economic conditions, our ability to reach agreement with the Partnership regarding the terms of any purchase and the availability to the Partnership of debt and equity capital on reasonable terms. |
Competitive
Strengths
We believe we have the following key competitive strengths:
| • | Breadth and quality of product and service offering. We provide our customers with a broad variety of products and services, including outsourced compression, production and processing services, as well as the sale of compression and oil and natural gas production and processing equipment and installation services. For those customers that outsource, we believe our contract operations services generally allow our customers to achieve higher production rates than they would achieve with their own operations, resulting in increased revenue for our customers. In addition, outsourcing allows our customers flexibility with regard to their changing compression and production and processing needs while limiting their capital requirements. By offering a broad range of services that complement our strengths, we believe that we can provide comprehensive integrated solutions to meet our customers’ needs. In our Total Solutions projects, we can provide the engineering design, project management, procurement and construction services necessary to incorporate our products into complete production, processing and compression facilities. We believe the breadth and quality of our services, the depth of |
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| our customer relationships and our presence in many major natural gas-producing regions place us in a position to capture additional business on a global basis. |
| • | Focus on providing superior customer service. We have adopted a geographical business region concept and utilize a decentralized management and operating structure to provide superior customer service in a relationship-driven, service-intensive industry. We believe that our regionally-based network, local presence, experience and in-depth knowledge of customers’ operating needs and growth plans enable us to effectively maintain high mechanical availability and meet our customers’ evolving demands on a more timely basis. Our sales efforts concentrate on demonstrating our commitment to enhancing the customer’s cash flow through superior customer service, product design, fabrication, installation and after-market support. | |
| • | Size and geographic scope. We operate in the primary onshore and offshore natural gas producing regions of North America and many international markets. We believe we have sufficient fleet size, personnel, logistical capabilities, geographic scope, fabrication capabilities and range of compression and production processing service and product offerings to meet the full service needs of our customers on a timely and cost-effective basis. We believe our size, geographic scope and broad customer base provide us with improved operating expertise and business development opportunities. | |
| • | Ability to leverage the Partnership. We believe that the Partnership provides us a lower cost of capital over time. Through the Partnership, we will attempt to grow our contract operations services in the U.S. |
Oil and
Natural Gas Industry Cyclicality and Volatility
The financial performance of our contract operations business is
generally less affected by short-term market cycles and oil and
natural gas price volatility than the financial performance of
our fabrication operations and other companies operating in the
oilfield services industry because:
| • | compression, production and processing services are necessary for natural gas to be delivered from the wellhead to end users; | |
| • | the need for compression services and equipment has grown over time due to the increased production of natural gas, the natural pressure decline of natural gas producing basins and the increased percentage of natural gas production from unconventional sources; and | |
| • | our contract operations businesses are tied primarily to natural gas and oil production and consumption, which are generally less cyclical in nature than exploration activities. |
In addition, we have a broad customer base and we operate in
diverse geographic regions. While compressors often must be
specifically engineered or reconfigured to meet the unique
demands of our customers, the fundamental technology of
compression equipment has not experienced significant
technological change.
Seasonal
Fluctuations
Our results of operations have not historically reflected any
material seasonal tendencies and we currently do not believe
that seasonal fluctuations will have a material impact on us in
the foreseeable future.
Market
and Customers
Our global customer base consists primarily of companies engaged
in all aspects of the oil and natural gas industry, including
large integrated oil and natural gas companies, national oil and
natural gas companies, independent producers and natural gas
processors, gatherers and pipelines.
Our contract operations and sales activities are conducted
throughout North America and internationally, including offshore
operations. We currently operate in over 30 countries in major
oil and natural gas producing areas including the U.S.,
Argentina, Brazil, Mexico, Italy and the United Arab Emirates.
We have fabrication facilities in the U.S., Italy, Singapore,
the United Arab Emirates and the United Kingdom.
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Sales and
Marketing
Our salespeople pursue the market for our products in their
respective territories. Each salesperson is assigned a customer
list or territory on the basis of the experience and personal
relationships of the salesperson and the individual service
requirements of the customer. This customer and
relationship-focused strategy is communicated through frequent
direct contact, technical presentations, print literature, print
advertising and direct mail. Additionally, our salespeople
coordinate with each other to effectively pursue customers who
operate in multiple regions. Our salespeople work with our
operations personnel in order to promptly respond to and satisfy
customer needs.
Upon receipt of a request for proposal or bid by a customer, we
analyze the application and prepare a quotation, including
pricing and delivery date. The quotation is then delivered to
the customer and, if we are selected as the vendor, final terms
are agreed upon and a contract or purchase order is executed.
Our engineering and operations personnel also provide assistance
on complex applications, field operations issues and equipment
modifications.
Sources
and Availability of Raw Materials
We fabricate compression and production and processing equipment
for use in providing contract operations services and for sale
to third parties from components and subassemblies, most of
which we acquire from a wide range of vendors. These components
represent a significant portion of the cost of our compressor
and production and processing equipment products. In addition,
we construct tank farms and fabricate critical process equipment
for refinery and petrochemical facilities and other vessels used
in production, processing and treating of crude oil and natural
gas. Steel is a commodity which can have wide price fluctuations
and represents a significant portion of the raw materials for
these products. Increases in raw material costs cannot always be
offset by increases in our products’ sales prices. While
many of our materials and components are available from multiple
suppliers at competitive prices, some of the components used in
our products are obtained from a limited group of suppliers. We
occasionally experience long lead times for components from our
suppliers and, therefore, we may at times make purchases in
anticipation of future orders.
Competition
The natural gas compression services and fabrication business is
highly competitive. Overall, we experience considerable
competition from companies that may be able to more quickly
adapt to changes within our industry and changes in economic
conditions as a whole, more readily take advantage of available
opportunities and adopt more aggressive pricing policies. We
believe that we compete effectively on the basis of price,
equipment availability, customer service and flexibility in
meeting customer needs and quality and reliability of our
compressors and related services. We face vigorous competition
in both compression services and compressor fabrication, with
some firms competing in both segments. In our production and
processing equipment business, we have different competitors in
the standard and custom-engineered equipment markets.
Competitors in the standard equipment market include several
large companies and a large number of small, regional
fabricators. Competition in the standard equipment market is
generally based upon price and availability. Our competition in
the custom-engineered market usually consists of larger
companies that have the ability to provide integrated projects
and product support after the sale. Increasingly, the ability to
fabricate these large custom-engineered systems near the point
of end-use is a competitive advantage.
International
Operations
We operate in many geographic markets outside North America. At
December 31, 2009, approximately 17% of our revenue was
generated by our operations in Latin America (primarily in
Argentina, Mexico and Brazil) and 31% of our revenue was
generated in the Eastern Hemisphere. Changes in local economic
or political conditions, particularly in Argentina and other
parts of Latin America and Nigeria, could have a material
adverse effect on our business, financial condition, results of
operations and cash flows.
Our future plans involve expanding our business in international
markets. The risks inherent in establishing new business
ventures, especially in international markets where local
customs, laws and business procedures
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present special challenges, may affect our ability to be
successful in these ventures or avoid losses which could have a
material adverse effect on our business, financial condition,
results of operations and cash flows.
We have significant operations that expose us to currency risk
in Argentina, Brazil, Italy, Canada and Mexico.
Additional risks inherent in our international business
activities are described below in Risk Factors. For financial
data relating to our geographic concentrations, see Note 23
to the Financial Statements.
Environmental
and Other Regulations
Government
Regulation
Our operations are subject to stringent and complex
U.S. federal, state, local and international laws and
regulations governing the discharge of materials into the
environment or otherwise relating to protection of the
environment and to occupational health and safety. Compliance
with these environmental laws and regulations may expose us to
significant costs and liabilities and cause us to incur
significant capital expenditures in our operations. Failure to
comply with these laws and regulations may result in the
assessment of administrative, civil and criminal penalties,
imposition of investigatory and remedial obligations, and the
issuance of injunctions delaying or prohibiting operations. We
believe that our operations are in substantial compliance with
applicable environmental and health and safety laws and
regulations and that continued compliance with current
requirements would not have a material adverse effect on us.
However, the clear trend in environmental regulation is to place
more restrictions on activities that may affect the environment,
and thus, any changes in these laws and regulations that result
in more stringent and costly waste handling, storage, transport,
disposal, emission or remediation requirements could have a
material adverse effect on our results of operations and
financial position.
The primary U.S. federal environmental laws to which our
operations are subject include the Clean Air Act
(“CAA”) and regulations thereunder, which regulate air
emissions; the Clean Water Act (“CWA”) and regulations
thereunder, which regulate the discharge of pollutants in
industrial wastewater and storm water runoff; the Resource
Conservation and Recovery Act (“RCRA”) and regulations
thereunder, which regulate the management and disposal of solid
and hazardous waste; and the Comprehensive Environmental
Response, Compensation, and Liability Act (“CERCLA”)
and regulations thereunder, known more commonly as
“Superfund,” which imposes liability for the
remediation of releases of hazardous substances in the
environment. We are also subject to regulation under the
Occupational Safety and Health Act (“OSHA”) and
regulations thereunder, which regulate the protection of the
health and safety of workers. Analogous state, local and
international laws and regulations may also apply.
Air
Emissions
The CAA and analogous state laws and their implementing
regulations regulate emissions of air pollutants from various
sources, including natural gas compressors, and also impose
various monitoring and reporting requirements. Such laws and
regulations may require a facility to obtain pre-approval for
the construction or modification of certain projects or
facilities expected to produce air emissions or result in the
increase of existing air emissions, obtain and strictly comply
with air permits containing various emissions and operational
limitations, or utilize specific emission control technologies
to limit emissions. Our standard contract operations contract
typically provides that the customer will assume permitting
responsibilities and certain environmental risks related to site
operations.
The Environmental Protection Agency (“EPA”) adopted
new rules effective March 18, 2008 that establish more
stringent emission standards for new spark ignition natural gas
compressor engines. The new rules require increased emission
controls on certain new and reconstructed stationary
reciprocating engines that were excluded from previous
regulation. We do not expect these rules to have a material
adverse effect on our operations or financial condition. In
March 2009, the EPA formally proposed new regulations under the
CAA to control emissions of hazardous air pollutants from
existing stationary reciprocal internal combustion engines. The
rule, when finalized by the EPA, may require us to undertake
significant expenditures, including expenditures for purchasing
and installing emissions control equipment such as oxidation
catalysts or non-
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selective catalytic reduction equipment, imposing more stringent
maintenance practices, and implementing additional monitoring
practices on a potentially significant percentage of our natural
gas compressor engine fleet. At this point, we cannot predict
the final regulatory requirements or the cost to comply with
such requirements. The comment period on the proposed regulation
ended on June 3, 2009 and the EPA has signed a consent
decree requiring it to promulgate a final rule no later than
August 10, 2010. Under the proposal, compliance will be
required by three years from the effective date of the final
rule. This proposed rule, when finalized, and any other new
regulations requiring the installation of more sophisticated
emission control equipment could have a material adverse impact
on our business, financial condition, results of operations and
cash flows.
Climate
Change
The U.S. Congress is considering new legislation to
restrict or regulate emissions of greenhouse gases, such as
carbon dioxide and methane, that are understood to contribute to
global warming. The American Clean Energy and Security Act of
2009 could, if enacted by the full Congress, require greenhouse
gas emissions reductions by covered sources of as much as 17%
from 2005 levels by 2020 and by as much as 83% by 2050. In
addition, almost half of the states, either individually or
through multi-state regional initiatives, have begun to address
greenhouse gas emissions, primarily through the planned
development of emission inventories or regional greenhouse gas
cap and trade programs. Although most of the state-level
initiatives have to date been focused on large sources of
greenhouse gas emissions, such as electric power plants, it is
possible that smaller sources such as our gas-fired compressors
could become subject to greenhouse gas-related regulation.
Depending on the particular program, we could be required to
control emissions or to purchase and surrender allowances for
greenhouse gas emissions resulting from our operations.
Also, as a result of the U.S. Supreme Court’s decision
on April 2, 2007 in
Massachusetts, et al. v.
EPA
, the EPA may regulate greenhouse gas emissions from
mobile sources such as new motor vehicles, even if Congress does
not adopt new legislation specifically addressing emissions of
greenhouse gases. The Court held in
Massachusetts v. EPA
that greenhouse gases including carbon dioxide fall under
the CAA’s definition of “air pollutant.” In July
2008, on the basis of this decision, the EPA released an
“Advance Notice of Proposed Rulemaking” regarding
possible future regulation of greenhouse gas emissions under the
CAA. In the notice, the EPA evaluated the potential regulation
of greenhouse gases under several different provisions of the
CAA, but did not propose any specific new regulatory
requirements for greenhouse gases. The notice and three other
recent regulatory developments, described below, along with
recent statements by the Administrator of the EPA, suggest that
the EPA is beginning to pursue a path toward the regulation of
greenhouse gas emissions under its existing CAA authority.
First, in September 2009, the EPA adopted a new rule requiring
approximately 13,000 facilities comprising a substantial
percentage of annual U.S. greenhouse gas emissions to
inventory their emissions starting in 2010 and to report those
emissions to the EPA beginning in 2011. That rule, at least for
now, does not apply to oil and gas systems. Second, on
December 15, 2009, the EPA officially published its
finalized determination that emissions of carbon dioxide,
methane and other greenhouse gases present an endangerment to
human health and the environment because emissions of such gases
are, according to the EPA, contributing to warming of the
earth’s atmosphere and other climatic changes. These
findings by the EPA pave the way for the agency to adopt and
implement regulations that would restrict emissions of
greenhouse gases under existing provisions of the CAA. Third,
the EPA in late September 2009 proposed a rule that would
provide for the tailored application of the agency’s major
air permitting programs to facilities that annually emit over
25,000 tons of greenhouse gases, such as large industrial
facilities of the type covered by the inventory rule described
above.
Although it is not currently possible to predict how any such
proposed or future greenhouse gas legislation or regulation by
Congress, the states, or multi-state regions will impact our
business, any legislation or regulation of greenhouse gas
emissions that may be imposed in areas in which we conduct
business could result in increased compliance costs or
additional operating restrictions or reduced demand for our
services, and could have a material adverse effect on our
business financial condition, results of operations and cash
flows.
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Water
Discharges
The CWA and analogous state laws and their implementing
regulations impose restrictions and strict controls with respect
to the discharge of pollutants into state waters or waters of
the U.S. The discharge of pollutants into regulated waters
is prohibited, except in accordance with the terms of a permit
issued by the EPA or an analogous state agency. In addition, the
CWA regulates storm water discharges associated with industrial
activities depending on a facility’s primary standard
industrial classification. Many of our facilities have applied
for and obtained industrial wastewater discharge permits as well
as sought coverage under local wastewater ordinances. In
addition, many of those facilities have filed notices of intent
for coverage under statewide storm water general permits and
developed and implemented storm water pollution prevention
plans, as required. U.S. federal laws also require
development and implementation of spill prevention, controls,
and countermeasure plans, including appropriate containment
berms and similar structures to help prevent the contamination
of navigable waters in the event of a petroleum hydrocarbon tank
spill, rupture, or leak at such facilities.
Waste
Management and Disposal
The RCRA and analogous state laws and their implementing
regulations govern the generation, transportation, treatment,
storage and disposal of hazardous and non-hazardous solid
wastes. During the course of our operations, we generate wastes
(including, but not limited to, used oil, antifreeze, filters,
sludges, paints, solvents, and sandblast materials) in
quantities regulated under RCRA. The EPA and various state
agencies have limited the approved methods of disposal for these
types of wastes. CERCLA and analogous state laws and their
implementing regulations impose strict, and under certain
conditions, joint and several liability without regard to fault
or the legality of the original conduct on classes of persons
who are considered to be responsible for the release of a
hazardous substance into the environment. These persons include
current and past owners and operators of the facility or
disposal site where the release occurred and any company that
transported, disposed of, or arranged for the transport or
disposal of the hazardous substances released at the site. Under
CERCLA, such persons may be subject to joint and several
liability for the costs of cleaning up the hazardous substances
that have been released into the environment, for damages to
natural resources and for the costs of certain health studies.
In addition, where contamination may be present, it is not
uncommon for neighboring landowners and other third parties to
file claims for personal injury, property damage and recovery of
response costs allegedly caused by hazardous substances or other
pollutants released into the environment.
We currently own or lease, and in the past have owned or leased,
a number of properties that have been used in support of our
operations for a number of years. Although we have utilized
operating and disposal practices that were standard in the
industry at the time, hydrocarbons, hazardous substances, or
other regulated wastes may have been disposed of or released on
or under the properties owned or leased by us or on or under
other locations where such materials have been taken for
disposal by companies sub-contracted by us. In addition, many of
these properties have been previously owned or operated by third
parties whose treatment and disposal or release of hydrocarbons,
hazardous substances or other regulated wastes was not under our
control. These properties and the materials released or disposed
thereon may be subject to CERCLA, RCRA and analogous state laws.
Under such laws, we could be required to remove or remediate
historical property contamination, or to perform certain
operations to prevent future contamination. At certain of such
sites, we are currently working with the prior owners who have
undertaken to monitor and cleanup contamination that occurred
prior to our acquisition of these sites. We are not currently
under any order requiring that we undertake or pay for any
clean-up
activities. However, we cannot provide any assurance that we
will not receive any such order in the future.
Occupational
Health and Safety
We are subject to the requirements of OSHA and comparable state
statutes. These laws and the implementing regulations strictly
govern the protection of the health and safety of employees. The
OSHA hazard communication standard, the EPA community
right-to-know regulations under Title III of CERCLA and
similar state statutes require that we organize
and/or
disclose information about hazardous materials used or
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produced in our operations. We believe we are in substantial
compliance with these requirements and with other OSHA and
comparable requirements.
International
Operations
Our operations outside the U.S. are subject to similar
international governmental controls and restrictions pertaining
to the environment and other regulated activities in the
countries in which we operate. We believe our operations are in
substantial compliance with existing international governmental
controls and restrictions and that compliance with these
international controls and restrictions has not had a material
adverse effect on our operations. We cannot provide any
assurance, however, that we will not incur significant costs to
comply with international controls and restrictions in the
future.
Employees
As of December 31, 2009, we had approximately
11,100 employees, approximately 700 of whom are represented
by labor unions. We believe that our relations with our
employees are satisfactory.
Available
Information
Our website address is
www.exterran.com
. Our
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports are available on our website,
without charge, as soon as reasonably practicable after they are
filed electronically with the SEC. Information contained on our
website is not incorporated by reference in this report or any
of our other securities filings. Paper copies of our filings are
also available, without charge, from Exterran Holdings, Inc.,
16666 Northchase Drive, Houston, Texas 77060, Attention:
Investor Relations. Alternatively, the public may read and copy
any materials we file with the SEC at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, DC
20549. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a website that contains reports, proxy
and information statements and other information regarding
issuers who file electronically with the SEC. The SEC’s
website address is
www.sec.gov
.
Additionally, we make available free of charge on our website:
| • | our Code of Business Conduct; | |
| • | our Corporate Governance Principles; and | |
| • | the charters of our audit, compensation, and nominating and corporate governance committees. |
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| Item 1A. | Risk Factors |
As described in Part I (“Disclosure Regarding
Forward-Looking Statements”), this report contains
forward-looking statements regarding us, our business and our
industry. The risk factors described below, among others, could
cause our actual results to differ materially from the
expectations reflected in the forward-looking statements. If any
of the following risks actually occurs, our business, financial
condition, operating results and cash flows could be negatively
impacted.
The
economic slowdown may have an impact on our business and
financial condition in ways that we currently cannot
predict.
The continuing challenges in the global economy and financial
markets may have an impact on our business and our financial
condition. If any of our lenders become unable to perform their
obligations under our credit facilities, our borrowing capacity
under these facilities could be reduced. Inability to borrow
additional amounts under those facilities could limit our
ability to fund our future growth and operations. These
challenges could also have an impact on our derivative
agreements if any of our counterparties are unable to perform
their obligations under those agreements.
A
reduction in demand for oil or natural gas or prices for those
commodities, or instability in North American or global energy
market, could adversely affect our business.
Our results of operations depend upon the level of activity in
the global energy market, including natural gas development,
production, processing and transportation. For example, as a
result of market conditions in 2009, our North America contract
operations and fabrication revenues and bookings decreased and
resulted in a decrease in income from continuing operations. Oil
and natural gas prices and the level of drilling and exploration
activity can be volatile. For example, oil and natural gas
exploration and development activity and the number of well
completions typically decline when there is a significant
reduction in oil and natural gas prices or significant
instability in energy markets. As a result, the demand for our
natural gas compression services and oil and natural gas
production and processing equipment could be adversely affected.
A reduction in demand could also force us to reduce our pricing
substantially. Additionally, in North America compression
services for our customers’ production from unconventional
natural gas sources such as tight sands, shales and coalbeds
constitute an increasing percentage of our business. Some of
these unconventional sources are less economic to produce in
lower natural gas price environments. Further, some of these
unconventional sources may not require as much compression or
require compression as early in the production life-cycle of an
unconventional field or well as has been experienced
historically in conventional and other unconventional natural
gas sources. These factors could in turn negatively impact the
demand for our products and services. A decline in demand for
oil and natural gas or prices for those commodities, or
instability in the North America or global energy markets could
have a material adverse effect on our business, financial
condition, results of operations and cash flows.
In addition, we review our long-lived assets for impairment when
events or changes in circumstances indicate the carrying value
may not be recoverable. Goodwill is tested for impairment at
least annually. A decline in demand for oil and natural gas or
prices for those commodities, or instability in the North
America or global energy markets could cause a further reduction
in demand for our products and services and result in a
reduction of our estimates of future cash flows and growth rates
in our business. These events could cause us to record
additional impairments of long-lived assets. For example, during
the years ended December 31, 2009 and 2008, we recorded
goodwill impairments of $150.8 million and
$1,148.4 million, respectively; and during 2009 and 2008,
we recorded fleet impairments of $91.0 million and
$24.1 million, respectively. The impairment of our
goodwill, intangible assets or other long-lived assets could
have a material adverse effect on our results of operations.
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The
currently available supply of compression equipment owned by our
customers and competitors could cause a further reduction in
demand for our products and services and a further reduction in
our pricing.
We believe there currently exists a greater supply of idle and
underutilized compression equipment owned by our customers and
competitors in North America than in recent years, which has
limited, and will continue to limit in the near term, our
ability to maintain or improve our horsepower utilization and
revenues. Some of our customers may continue to replace our
compression equipment and services with equipment they own or
with competitor owned equipment and may continue to rationalize
their amount of compression horsepower. In addition, some of our
customers or prospective customers may purchase their own
compression equipment in lieu of using our products or services.
For example, our total North America operating horsepower
decreased by approximately 17% from December 31, 2008 to
December 31, 2009, and we expect further horsepower
declines into 2010. A further reduction in demand for our
products and services, or a further reduction in our pricing for
our products or services, could have a material adverse effect
on our business, financial condition, results of operations and
cash flows.
The
erosion of the financial condition of our customers could
adversely affect our business.
Many of our customers finance their exploration and development
activities through cash flow from operations, the incurrence of
debt or the issuance of equity. During times when the oil or
natural gas markets weaken, our customers are more likely to
experience a downturn in their financial condition. A reduction
in borrowing bases under reserve-based credit facilities and the
lack of availability of debt or equity financing could result in
a reduction in our customers’ spending for our products and
services. For example, our customers could seek to preserve
capital by canceling
month-to-month
contracts, canceling or delaying scheduled maintenance of their
existing natural gas compression and oil and natural gas
production and processing equipment or determining not to enter
into any new natural gas compression service contracts or
purchase new compression and oil and natural gas production and
processing equipment, thereby reducing demand for our products
and services. Reduced demand for our products and services could
adversely affect our business, financial condition, results of
operations and cash flows. In addition, in the event of the
financial failure of a customer, we could experience a loss on
all or a portion of our outstanding accounts receivable
associated with that customer.
There
are many risks associated with conducting operations in
international markets.
We operate in many geographic markets outside the U.S., which
entails difficulties in staffing and managing our international
operations and complying with legal and regulatory requirements.
Changes in local economic or political conditions could have a
material adverse effect on our business, financial condition,
results of operations and cash flows. For example, as discussed
in Note 2 to the Financial Statements, in 2009 the
Venezuelan state-owned oil company, Petroleos de Venezuela S.A.
(“PDVSA”), assumed control over substantially all of
our assets and operations in Venezuela. The risks inherent in
our international business activities include the following:
| • | difficulties in managing international operations, including our ability to timely and cost effectively execute projects; | |
| • | unexpected changes in regulatory requirements, laws or policies by foreign agencies or governments; | |
| • | training and retaining qualified personnel in international markets; | |
| • | the burden of complying with multiple and potentially conflicting laws and regulations; | |
| • | tariffs and other trade barriers; | |
| • | governmental actions that result in the deprivation of contract rights and other difficulties in enforcing contractual obligations; | |
| • | governmental actions that result in restricting the movement of property; |
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| • | foreign currency exchange rate risks; | |
| • | difficulty in collecting international accounts receivable; | |
| • | potentially longer receipt of payment cycles; | |
| • | changes in political and economic conditions in the countries in which we operate, including general political unrest, the nationalization of energy related assets, civil uprisings, riots, kidnappings and terrorist acts; | |
| • | the potential risks relating to the retention of sales representatives, consultants and other agents in certain high-risk countries; | |
| • | potentially adverse tax consequences or tax law changes; | |
| • | currency controls or restrictions on repatriation of earnings or expropriation of property without fair compensation; | |
| • | the risk that our international customers may have reduced access to credit because of higher interest rates, reduced bank lending or a deterioration in our customers’ or their lenders’ financial condition; | |
| • | the geographic, time zone, language and cultural differences among personnel in different areas of the world; and | |
| • | difficulties in establishing new international offices and risks inherent in establishing new relationships in foreign countries. |
In addition, we plan to expand our business in international
markets where we have not previously conducted business. The
risks inherent in establishing new business ventures, especially
in international markets where local customs, laws and business
procedures present special challenges, may affect our ability to
be successful in these ventures or avoid losses that could have
a material adverse effect on our business, financial condition,
results of operations and cash flows.
There
are risks associated with our operations in Nigeria. Local
unrest and violence in Nigeria have adversely affected our
historical financial results and could result in additional
impairments and write-downs of our assets in Nigeria if the
political situation in Nigeria does not improve.
Our operations in Nigeria are subject to numerous risks and
uncertainties associated with operating in Nigeria. These risks
include, among other things, political, social and economic
instability, civil uprisings, riots, terrorism, kidnapping, the
taking of property without fair compensation and governmental
actions that may restrict payments or the movement of funds or
property or result in the deprivation of contract rights. Any of
these risks, including risks arising from the increase in
violence and local unrest in Nigeria over the past several
years, could adversely impact our operations in Nigeria and
could affect the timing and decrease the amount of revenue we
may realize from our assets in Nigeria. At December 31,
2009 our net investment in assets in Nigeria was
$46.9 million.
We are
exposed to exchange rate fluctuations in the international
markets in which we operate. A decrease in the value of any of
these currencies relative to the U.S. dollar could reduce
profits from international operations and the value of our
international net assets.
We operate in many international countries. We anticipate that
there will be instances in which costs and revenues will not be
exactly matched with respect to currency denomination. We
generally do not hedge exchange rate exposures, which exposes us
to the risk of exchange rate losses. Gains and losses from the
remeasurement of assets and liabilities that are receivable or
payable in currency other than our subsidiaries’ functional
currency are included in our consolidated statements of
operations. In addition, currency fluctuations cause the
U.S. dollar value of our international results of
operations and net assets to vary with exchange rate
fluctuations. This could have a negative impact on our business,
financial condition or results of operations. In addition,
fluctuations in currencies relative to currencies in which the
earnings are generated may make it more difficult to perform
period-to-period
comparisons of our reported results of operations. For
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example, other (income) expense, net for the year ended
December 31, 2009 includes foreign currency translation
gains of $16.7 million compared to a loss of
$10.7 million for the year ended December 31, 2008.
To the extent we continue to expand geographically, we expect
that increasing portions of our revenues, costs, assets and
liabilities will be subject to fluctuations in foreign currency
valuations. We may experience economic loss and a negative
impact on earnings or net assets solely as a result of foreign
currency exchange rate fluctuations. Further, the markets in
which we operate could restrict the removal or conversion of the
local or foreign currency, resulting in our inability to hedge
against these risks.
Our
failure to timely and cost-effectively execute on larger
projects could adversely affect our business.
As our business has grown, the size and scope of some of our
contracts with our customers has increased. This increase in
size and scope can translate into more technically challenging
conditions or performance specifications for our products and
services. Contracts with our customers generally specify
delivery dates, performance criteria and penalties for our
failure to perform. Any failure to execute such larger projects
in a timely and cost effective manner could have a material
adverse effect on our business, financial condition, results of
operations and cash flows.
We may
incur losses on fixed-price contracts, which constitute a
significant portion of our fabrication business.
In connection with projects covered by fixed-price contracts, we
generally bear the risk of cost over-runs, operating cost
inflation, labor availability and productivity, and supplier and
subcontractor pricing and performance unless they result from
customer-requested change orders. Under both our fixed-price
contracts and our cost-reimbursable contracts, we may rely on
third parties for many support services, and we could be subject
to liability for their failures. For example, we have
experienced losses on certain large fabrication projects that
have negatively impacted our fabrication results. Our failure to
accurately estimate our costs and the time required for a
fixed-price fabrication project could have a material adverse
effect on our business, results of operations, cash flows and
financial condition.
We
have a substantial amount of debt that could limit our ability
to fund future growth and operations and increase our exposure
to risk during adverse economic conditions.
At December 31, 2009, we had approximately
$2.3 billion in outstanding debt obligations. Many factors,
including factors beyond our control, may affect our ability to
make payments on our outstanding indebtedness. These factors
include those discussed elsewhere in these Risk Factors and
those listed in the Disclosure Regarding Forward-Looking
Statements section included in Part I of this report.
Our substantial debt and associated commitments could have
important adverse consequences. For example, these commitments
could:
| • | make it more difficult for us to satisfy our contractual obligations; | |
| • | increase our vulnerability to general adverse economic and industry conditions; | |
| • | limit our ability to fund future working capital, capital expenditures, acquisitions or other corporate requirements; | |
| • | increase our vulnerability to interest rate fluctuations because the interest payments on a portion of our debt are based upon variable interest rates and a portion can adjust based upon our credit statistics; | |
| • | limit our flexibility in planning for, or reacting to, changes in our business and our industry; | |
| • | place us at a disadvantage compared to our competitors that have less debt; and | |
| • | limit our ability to refinance our debt in the future or borrow additional funds. |
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We may
be vulnerable to interest rate increases due to our floating
rate debt obligations.
As of December 31, 2009, after taking into consideration
interest rate swaps, we had approximately $406.4 million of
outstanding indebtedness subject to interest at floating rates.
Changes in economic conditions outside of our control could
result in higher interest rates, thereby increasing our interest
expense and reducing the funds available for capital investment,
operations or other purposes.
Covenants
in our debt agreements may impair our ability to operate our
business.
Our bank credit facilities, asset-backed securitization
facilities and the agreements governing certain of our other
indebtedness include various covenants with which we must
comply, including, but not limited to, limitations on incurrence
of indebtedness, investments, liens on assets, transactions with
affiliates, mergers, consolidations, sales of assets and other
provisions customary in similar types of agreements. For
example, we must maintain various consolidated financial ratios
including a ratio of EBITDA (as defined in the credit agreement)
to Total Interest Expense (as defined in the credit agreement)
of not less than 2.25 to 1.0, a ratio of consolidated Total Debt
(as defined in the credit agreement) to EBITDA of not greater
than 5.0 to 1.0 and a ratio of Senior Secured Debt (as defined
in the credit agreement) to EBITDA of not greater than 4.0 to
1.0. As of December 31, 2009, we maintained a 6.1 to 1.0
EBITDA to Total Interest Expense ratio, a 3.5 to 1.0
consolidated Total Debt to EBITDA ratio and a 2.8 to 1.0 Senior
Secured Debt to EBITDA ratio. As of December 31, 2009, we
were in compliance with all financial covenants under our credit
agreements. If we fail to remain in compliance with our
financial covenants we would be in default under our credit
agreements. In addition, if we experience a material adverse
effect on our assets, liabilities, financial condition,
business, operations or prospects that, taken as a whole,
impacted our ability to perform our obligations under our credit
agreements, this could lead to a default under our credit
agreements. A default under one or more of our debt agreements
would in some situations trigger cross-default provisions under
certain agreements relating to our debt obligations. If our
operations in Venezuela had been excluded from our calculation
of EBITDA for the year ended December 31, 2009, we would
have had a 5.9 to 1.0 EBITDA to Total Interest Expense ratio, a
3.7 to 1.0 consolidated Total Debt to EBITDA ratio and a 2.9 to
1.0 Senior Secured Debt to EBITDA ratio.
The Partnership’s credit facility and asset-backed
securitization facility also include covenants limiting its
ability to make distributions, incur indebtedness, grant liens,
merge, make loans, acquisitions, investments or dispositions and
engage in transactions with affiliates. The Partnership must
maintain various consolidated financial ratios, including a
ratio of EBITDA (as defined in the Partnership Credit Agreement)
to Total Interest Expense (as defined in the Partnership Credit
Agreement) of not less than 2.5 to 1.0, and a ratio of Total
Debt (as defined in the Partnership Credit Agreement) to EBITDA
of not greater than 5.0 to 1.0. As of December 31, 2009,
the Partnership maintained a 5.2 to 1.0 EBITDA to Total Interest
Expense ratio and a 4.0 to 1.0 Total Debt to EBITDA ratio. The
Partnership Credit Agreement allows for the Partnership’s
Total Debt to EBITDA ratio to be increased from 5.0 to 1.0 to
5.5 to 1.0 during a quarter when an acquisition closes meeting
certain thresholds and for the following two quarters after the
acquisition closes. Therefore, because the Partnership acquired
from us additional contract operations customer service
agreements and a fleet of compressor units used to provide
compression services under those agreements, which met the
applicable thresholds in the fourth quarter of 2009, the maximum
allowed ratio of Total Debt to EBITDA was increased from 5.0 to
1.0 to 5.5 to 1.0 for the period from December 31, 2009
through June 30, 2010. After June 30, 2010, the
Partnership’s required Total Debt to EBITDA ratio will
revert to 5.0 to 1.0. As of December 31, 2009, the
Partnership was in compliance with all financial covenants under
the Partnership Credit Agreement.
As of December 31, 2009, due to certain covenant
limitations under the facility, only approximately
$58.2 million of the $230.0 million in unfunded
commitments could have been available for additional borrowings,
if such facility were fully funded with all eligible contract
compression assets available at that time. If our operations
within Exterran ABS experience additional reductions in cash
flows, the amount available for additional borrowings could be
further reduced.
If we continue to experience a significant deterioration in the
demand for our products or services, we may not be able to
comply with certain of the covenants associated with our
indebtedness. The breach of any of our covenants could result in
a default under one or more of our debt agreements, which could
cause our
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indebtedness under those agreements to become due and payable.
In addition, a default under one or more of our debt agreements,
including a default by the Partnership under its credit
facilities, would trigger cross-default provisions under certain
of our debt agreements, which would accelerate our obligation to
repay our indebtedness under those agreements. If the
Partnership continues to experience a deterioration in the
demand for its services, and is unable to consummate further
acquisitions from us, amend its senior secured credit facility
or restructure its debt, it estimates that it could be in
violation of the maximum Total Debt to EBITDA covenant ratio
contained in its senior secured credit facility during 2010. The
breach of this or any other covenant could result in a default
under the Partnership’s credit agreement, which could cause
its indebtedness under the credit agreement to become due and
payable. If the repayment obligations on any of our indebtedness
were to be so accelerated, we may not be able to repay the debt
or refinance the debt on acceptable terms, and our financial
position would be materially adversely affected.
Many
of our contract operations services contracts have short initial
terms, and we cannot be sure that such contracts will be renewed
after the end of the initial contractual term.
The length of our contract operations services contracts with
customers varies based on operating conditions and customer
needs. In most cases, based on currently prevailing services
rates, our initial contract terms are not long enough to enable
us to fully recoup the cost of the equipment we utilize to
provide contract operations services. We cannot be sure that a
substantial number of these customers will continue to renew
their contracts, that we will be able to enter into new contract
operations services contracts with customers or that any
renewals will be at comparable rates. The inability to renew a
substantial portion of our contract operations services
contracts, or the inability to renew a substantial portion of
our contract operations services contracts at comparable service
rates, would lead to a reduction in revenues and net income and
could require us to record additional asset impairments. This
would have a material adverse effect upon our business,
financial condition, results of operations and cash flows.
We
depend on particular suppliers and are vulnerable to product
shortages and price increases.
Some of the components used in our products are obtained from a
single source or a limited group of suppliers. Our reliance on
these suppliers involves several risks, including price
increases, inferior component quality and a potential inability
to obtain an adequate supply of required components in a timely
manner. The partial or complete loss of certain of these sources
could have a negative impact on our results of operations and
could damage our customer relationships. Further, a significant
increase in the price of one or more of these components could
have a negative impact on our results of operations.
We
face significant competitive pressures that may cause us to lose
market share and harm our financial performance.
Our industry is highly competitive and there are low barriers to
entry, especially in North America. We expect to experience
competition from companies that may be able to adapt more
quickly to technological changes within our industry and
throughout the economy as a whole, more readily take advantage
of acquisitions and other opportunities and adopt more
aggressive pricing policies. Our ability to renew or replace
existing contract operations service contracts with our
customers at rates sufficient to maintain current revenue and
cash flows could be adversely affected by the activities of our
competitors. If our competitors substantially increase the
resources they devote to the development and marketing of
competitive products or services or substantially decrease the
price at which they offer their products or services, we may not
be able to compete effectively. Some of these competitors may
expand or fabricate new compression units that would create
additional competition for the services we currently provide to
our customers. In addition, our other lines of business could
face significant competition.
We also may not be able to take advantage of certain
opportunities or make certain investments because of our
significant leverage and our other obligations. Any of these
competitive pressures could have a material adverse effect on
our business, results of operations and financial condition.
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Our
operations entail inherent risks that may result in substantial
liability. We do not insure against all potential losses and
could be seriously harmed by unexpected
liabilities.
Our operations entail inherent risks, including equipment
defects, malfunctions and failures and natural disasters, which
could result in uncontrollable flows of natural gas or well
fluids, fires and explosions. These risks may expose us, as an
equipment operator and fabricator, to liability for personal
injury, wrongful death, property damage, pollution and other
environmental damage. The insurance we carry against many of
these risks may not be adequate to cover our claims or losses.
We currently have a minimal amount of insurance on our offshore
assets. In addition, we are substantially self-insured for
worker’s compensation, employer’s liability, property,
auto liability, general liability and employee group health
claims in view of the relatively high per-incident deductibles
we absorb under our insurance arrangements for these risks.
Further, insurance covering the risks we expect to face or in
the amounts we desire may not be available in the future or, if
available, the premiums may not be commercially justifiable. If
we were to incur substantial liability and such damages were not
covered by insurance or were in excess of policy limits, or if
we were to incur liability at a time when we were not able to
obtain liability insurance, our business, results of operations
and financial condition could be negatively impacted.
The
tax treatment of the Partnership depends on its status as a
partnership for U.S. federal income tax purposes, as well
as it not being subject to a material amount of entity-level
taxation by individual states. If the Internal Revenue Service
treats the Partnership as a corporation or if the Partnership
becomes subject to a material amount of entity-level taxation
for state tax purposes, it would substantially reduce the amount
of cash available for distribution to the Partnership’s
unitholders and undermine the cost of capital advantage we
believe the Partnership has.
The anticipated after-tax economic benefit of an investment in
the Partnership’s common units depends largely on it being
treated as a partnership for U.S. federal income tax
purposes. The Partnership has not received a ruling from the
Internal Revenue Service (“IRS”) on this or any other
tax matter affecting it.
If the Partnership were treated as a corporation for
U.S. federal income tax purposes, it would pay
U.S. federal income tax at the corporate tax rate and would
also likely pay state income tax. Treatment of the Partnership
as a corporation for U.S. federal income tax purposes would
result in a material reduction in the anticipated cash flow and
after-tax return to its unitholders, likely causing a
substantial reduction in the value of its common units.
Current law may change so as to cause the Partnership to be
treated as a corporation for U.S. federal income tax
purposes or otherwise subject it to entity-level taxation. In
addition, because of widespread state budget deficits and other
reasons, several states are evaluating ways to subject
partnerships to entity-level taxation through the imposition of
state income, franchise and other forms of taxation. The
Partnership’s partnership agreement provides that if a law
is enacted or existing law is modified or interpreted in a
manner that subjects it to taxation as a corporation or
otherwise subjects it to entity-level taxation for
U.S. federal, state or local income tax purposes, the
minimum quarterly distribution amount and the target
distribution levels of the Partnership may be adjusted to
reflect the impact of that law on it at the option of its
general partner without the consent of its unitholders. If the
Partnership were to be taxed at the entity level, it would lose
the comparative cost of capital advantage we believe it has over
time as compared to a corporation.
The
tax treatment of publicly traded partnerships or our investment
in the Partnership could be subject to potential legislative,
judicial or administrative changes and differing
interpretations, possibly on a retroactive basis.
The present U.S. federal income tax treatment of publicly
traded partnerships, including the Partnership, or our
investment in the Partnership may be modified by administrative,
legislative or judicial interpretation at any time. For example,
judicial interpretations of the U.S. federal income tax
laws may have a direct or indirect impact on the
Partnership’s status as a partnership and, in some
instances, a court’s conclusions may heighten the risk of a
challenge regarding the Partnership’s status as a
partnership. Moreover, members of Congress have considered
substantive changes to the existing U.S. federal income tax
laws that would have affected
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publicly traded partnerships. Any modification to the
U.S. federal income tax laws and interpretations thereof
may or may not be applied retroactively. Although the
legislation considered would not have appeared to affect the
Partnership’s tax treatment as a partnership, we are unable
to predict whether any of these changes, or other proposals,
will be reconsidered or will ultimately be enacted. Any such
changes or differing judicial interpretations of existing laws
could negatively impact the value of our investment in the
Partnership.
New
proposed regulations under the Clean Air Act, if implemented,
could result in increased compliance costs.
In March 2009, the EPA formally proposed new regulations under
the CAA to control emissions of hazardous air pollutants from
existing stationary reciprocal internal combustion engines. The
rule, when finalized by the EPA, may require us to undertake
significant expenditures, including expenditures for purchasing
and installing emissions control equipment such as oxidation
catalysts or non-selective catalytic reduction equipment,
imposing more stringent maintenance practices, and implementing
additional monitoring practices on a potentially significant
percentage of our natural gas compressor engine fleet. At this
point, we cannot predict the final regulatory requirements or
the cost to comply with such requirements. The comment period on
the proposed regulation ended on June 3, 2009, and the EPA
has signed a consent decree requiring it to promulgate a final
rule no later than August 10, 2010. Under the proposal,
compliance will be required by three years from the effective
date of the final rule. This proposed rule, when finalized, and
any other new regulations requiring the installation of more
sophisticated emission control equipment could have a material
adverse impact on our business, financial condition, results of
operations and cash flows.
We are
subject to a variety of governmental regulations; failure to
comply with these regulations may result in administrative,
civil and criminal enforcement measures.
We are subject to a variety of U.S. federal, state, local
and international laws and regulations relating to the
environment, health and safety, export controls, currency
exchange, labor and employment and taxation. These laws and
regulations are complex, change frequently and have tended to
become more stringent over time. Failure to comply with these
laws and regulations may result in a variety of administrative,
civil and criminal enforcement measures, including assessment of
monetary penalties, imposition of remedial requirements and
issuance of injunctions as to future compliance. From time to
time, as part of our operations, including newly acquired
operations, we may be subject to compliance audits by regulatory
authorities in the various countries in which we operate.
Environmental laws and regulations may, in certain
circumstances, impose strict liability for environmental
contamination, which may render us liable for remediation costs,
natural resource damages and other damages as a result of our
conduct that was lawful at the time it occurred or the conduct
of, or conditions caused by, prior owners or operators or other
third parties. In addition, where contamination may be present,
it is not uncommon for neighboring land owners and other third
parties to file claims for personal injury, property damage and
recovery of response costs. Remediation costs and other damages
arising as a result of environmental laws and regulations, and
costs associated with new information, changes in existing
environmental laws and regulations or the adoption of new
environmental laws and regulations could be substantial and
could negatively impact our financial condition or results of
operations.
We may need to apply for or amend facility permits or licenses
from time to time with respect to storm water or wastewater
discharges, waste handling, or air emissions relating to
manufacturing activities or equipment operations, which subjects
us to new or revised permitting conditions that may be onerous
or costly to comply with. In addition, certain of our customer
service arrangements may require us to operate, on behalf of a
specific customer, petroleum storage units such as underground
tanks or pipelines and other regulated units, all of which may
impose additional compliance and permitting obligations.
We conduct operations at numerous facilities in a wide variety
of locations across the continental U.S. and
internationally. The operations at many of these facilities
require environmental permits or other authorizations.
Additionally, natural gas compressors at many of our
customers’ facilities require individual air permits or
general authorizations to operate under various air regulatory
programs established by rule or
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regulation. These permits and authorizations frequently contain
numerous compliance requirements, including monitoring and
reporting obligations and operational restrictions, such as
emission limits. Given the large number of facilities in which
we operate, and the numerous environmental permits and other
authorizations that are applicable to our operations, we may
occasionally identify or be notified of technical violations of
certain requirements existing in various permits or other
authorizations. Occasionally, we have been assessed penalties
for our non-compliance, and we could be subject to such
penalties in the future.
We routinely deal with natural gas, oil and other petroleum
products. Hydrocarbons or other hazardous substances or wastes
may have been disposed or released on, under or from properties
used by us to provide contract operations services or inactive
compression storage or on or under other locations where such
substances or wastes have been taken for disposal. These
properties may be subject to investigatory, remediation and
monitoring requirements under environmental laws and regulations.
The modification or interpretation of existing environmental
laws or regulations, the more vigorous enforcement of existing
environmental laws or regulations, or the adoption of new
environmental laws or regulations may also negatively impact oil
and natural gas exploration and production, gathering and
pipeline companies, which in turn could have a negative impact
on us.
Climate
change legislation and regulatory initiatives could result in
increased compliance costs.
The U.S. Congress is considering new legislation to
restrict or regulate emissions of greenhouse gases, such as
carbon dioxide and methane, that are understood to contribute to
global warming. For example, the American Clean Energy and
Security Act of 2009 could, if enacted by the full Congress,
require greenhouse gas emissions reductions by covered sources
of as much as 17% from 2005 levels by 2020 and by as much as 83%
by 2050. In addition, almost half of the states, either
individually or through multi-state regional initiatives, have
begun to address greenhouse gas emissions, primarily through the
planned development of emission inventories or regional
greenhouse gas cap and trade programs. Although most of the
state-level initiatives have to date been focused on large
sources of greenhouse gas emissions, such as electric power
plants, it is possible that smaller sources such as our
gas-fired compressors could become subject to greenhouse
gas-related regulation. Depending on the particular program, we
could be required to control emissions or to purchase and
surrender allowances for greenhouse gas emissions resulting from
our operations.
Also, as a result of the U.S. Supreme Court’s decision
on April 2, 2007 in
Massachusetts, et al. v.
EPA
, the EPA may regulate greenhouse gas emissions from
mobile sources such as new motor vehicles, even if Congress does
not adopt new legislation specifically addressing emissions of
greenhouse gases. The Court held in
Massachusetts v. EPA
that greenhouse gases including carbon dioxide fall under
the CAA’s definition of “air pollutant.” In July
2008, on the basis of this decision, the EPA released an
“Advance Notice of Proposed Rulemaking” regarding
possible future regulation of greenhouse gas emissions under the
CAA. In the notice, the EPA evaluated the potential regulation
of greenhouse gases under several different provisions of the
CAA, but did not propose any specific new regulatory
requirements for greenhouse gases. The notice and three other
recent regulatory developments, described below, along with
recent statements by the Administrator of the EPA, suggest that
the EPA is beginning to pursue a path toward the regulation of
greenhouse gas emissions under its existing CAA authority.
First, in September 2009, the EPA adopted a new rule requiring
approximately 13,000 facilities comprising a substantial
percentage of annual U.S. greenhouse gas emissions to
inventory their emissions starting in 2010 and to report those
emissions to the EPA beginning in 2011. That rule, at least for
now, does not apply to oil and gas systems. Second, on
December 15, 2009, the EPA officially published its
finalized determination that emissions of carbon dioxide,
methane and other greenhouse gases present an endangerment to
human health and the environment because emissions of such gases
are, according to the EPA, contributing to warming of the
earth’s atmosphere and other climatic changes. These
findings by the EPA pave the way for the agency to adopt and
implement regulations that would restrict emissions of
greenhouse gases under existing provisions of the CAA. Third,
the EPA in late September 2009 proposed a rule that would
provide for the tailored application of the agency’s major
air permitting programs to facilities that annually emit over
25,000 tons of greenhouse gases, such as large industrial
facilities of the type covered by the inventory rule described
above.
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Although it is not currently possible to predict how any such
proposed or future greenhouse gas legislation or regulation by
Congress, the states or multi-state regions will impact our
business, any legislation or regulation of greenhouse gas
emissions that may be imposed in areas in which we conduct
business could result in increased compliance costs or
additional operating restrictions or reduced demand for our
products and services, and could have a material adverse effect
on our business, financial condition, results of operations and
cash flows.
The
price of our common stock may be volatile.
Some of the factors that could affect the price of our common
stock are quarterly increases or decreases in revenue or
earnings, changes in revenue or earnings estimates by the
investment community and speculation in the press or investment
community about our financial condition or results of
operations. General market conditions and North America or
international economic factors and political events unrelated to
our performance may also affect our stock price. In addition,
the price of our common stock may be impacted by changes in the
value of our investment in the Partnership. For these reasons,
investors should not rely on recent trends in the price of our
common stock to predict the future price of our common stock or
our financial results.
We may
not be able to consummate additional contributions or sales of
portions of our U.S. contract operations business to the
Partnership.
As part of our business strategy, we intend to contribute or
sell the remainder of our U.S. contract operations business
to the Partnership, over time, but we are under no obligation to
do so. Likewise, the Partnership is under no obligation to
purchase any additional portions of that business. The
consummation of any future sales of additional portions of that
business and the timing of such sales will depend upon, among
other things:
| • | our reaching agreement with the Partnership regarding the terms of such sales, which will require the approval of the conflicts committee of the board of directors of the Partnership’s general partner, which is comprised exclusively of directors who are deemed independent from us; | |
| • | the Partnership’s ability to finance such purchases on acceptable terms, which could be impacted by general equity and debt market conditions as well as conditions in the markets specific to master limited partnerships; and | |
| • | the Partnership’s and our compliance with our respective debt agreements. |
The Partnership intends to fund its future acquisitions from us
with external sources of capital, including additional
borrowings under its credit facilities
and/or
public or private offerings of equity or debt. As a result of
the economic slowdown and the availability of equity and debt
capital, the Partnership’s ability to fund future
acquisitions of our U.S. contract operations business may
be limited.
If we are unable to consummate additional contributions or sales
of our U.S. contract operations business to the
Partnership, we may not be able to capitalize on what we believe
is the Partnership’s lower cost of capital over time, which
could impact our competitive position in the
U.S. Additionally, without the proceeds from future
contributions or sales of our U.S. contract operations
business to the Partnership, we will have less capital to invest
to grow our business.
Our
charter and bylaws contain provisions that may make it more
difficult for a third party to acquire control of us, even if a
change in control would result in the purchase of our
stockholders’ shares of common stock at a premium to the
market price or would otherwise be beneficial to our
stockholders.
There are provisions in our restated certificate of
incorporation and bylaws that may make it more difficult for a
third party to acquire control of us, even if a change in
control would result in the purchase of our stockholders’
shares of common stock at a premium to the market price or would
otherwise be beneficial to our stockholders. For example, our
restated certificate of incorporation authorizes the board of
directors to issue preferred stock without stockholder approval.
If our board of directors elects to issue preferred stock, it
25
Table of Contents
could be more difficult for a third party to acquire us. In
addition, provisions of our restated certificate of
incorporation and bylaws, such as limitations on stockholder
actions by written consent and on stockholder proposals at
meetings of stockholders, could make it more difficult for a
third party to acquire control of us. Delaware corporation law
may also discourage takeover attempts that have not been
approved by the board of directors.
| Item 1B. | Unresolved Staff Comments |
None.
26
Table of Contents
| Item 2. | Properties |
The following table describes the material facilities we owned
or leased as of December 31, 2009:
|
Square
|
||||||||
|
Location
|
Status | Feet |
Uses
|
|||||
|
Houston, Texas
|
Leased | 243,746 | Corporate office | |||||
|
Oklahoma City, Oklahoma
|
Leased | 41,250 | North America contract operations and aftermarket services | |||||
|
Yukon, Oklahoma
|
Owned | 72,000 | North America contract operations and aftermarket services | |||||
|
Belle Chase, Louisiana
|
Owned | 35,000 | North America contract operations and aftermarket services | |||||
|
Casper, Wyoming
|
Owned | 28,390 | North America contract operations and aftermarket services | |||||
|
Davis, Oklahoma
|
Owned | 393,870 | North America contract operations and aftermarket services | |||||
|
Edmonton, Alberta, Canada
|
Leased | 53,557 | North America contract operations and aftermarket services | |||||
|
Farmington, New Mexico
|
Owned | 42,097 | North America contract operations and aftermarket services | |||||
|
Kilgore, Texas
|
Owned | 31,000 | North America contract operations and aftermarket services | |||||
|
Midland, Texas
|
Owned | 53,300 | North America contract operations and aftermarket services | |||||
|
Midland, Texas
|
Owned | 22,180 | North America contract operations and aftermarket services | |||||
|
Pampa, Texas
|
Leased | 24,000 | North America contract operations and aftermarket services | |||||
|
Schulenburg, Texas
|
Owned | 23,000 | North America contract operations and aftermarket services | |||||
|
Victoria, Texas
|
Owned | 59,852 | North America contract operations and aftermarket services | |||||
|
Yukon, Oklahoma
|
Owned | 22,453 | North America contract operations and aftermarket services | |||||
|
Camacari, Brazil
|
Owned | 86,111 | International contract operations and aftermarket services | |||||
|
Neuquen, Argentina
|
Leased | 47,500 | International contract operations and aftermarket services | |||||
|
Reynosa, Mexico
|
Owned | 22,235 | International contract operations and aftermarket services | |||||
|
Comodoro Rivadavia, Argentina
|
Owned | 26,000 | International contract operations and aftermarket services | |||||
|
Neuquen, Argentina
|
Owned | 30,000 | International contract operations and aftermarket services | |||||
|
Santa Cruz, Bolivia
|
Leased | 22,017 | International contract operations and aftermarket services | |||||
|
Port Harcourt, Nigeria
|
Leased | 32,808 | Aftermarket services | |||||
|
Houma, Louisiana
|
Owned | 60,000 | Aftermarket services | |||||
|
Houston, Texas
|
Owned | 343,750 | Fabrication | |||||
|
Houston, Texas
|
Owned | 244,000 | Fabrication | |||||
|
Broussard, Louisiana
|
Owned | 74,402 | Fabrication | |||||
|
Broken Arrow, Oklahoma
|
Owned | 141,549 | Fabrication | |||||
|
Aldridge, United Kingdom
|
Owned | 44,700 | Fabrication | |||||
|
Columbus, Texas
|
Owned | 219,552 | Fabrication | |||||
|
Jebel Ali Free Zone, UAE
|
Leased | 112,378 | Fabrication | |||||
|
Hamriyah Free Zone, UAE
|
Leased | 212,742 | Fabrication | |||||
|
Mantova, Italy
|
Owned | 654,397 | Fabrication | |||||
|
Singapore, Singapore
|
Leased | 482,107 | Fabrication | |||||
Our executive offices are located at 16666 Northchase Drive,
Houston, Texas 77060 and our telephone number is
(281) 836-7000.
| Item 3. | Legal Proceedings |
In the ordinary course of business we are involved in various
pending or threatened legal actions. While management is unable
to predict the ultimate outcome of these actions, it believes
that any ultimate liability arising from these actions will not
have a material adverse effect on our consolidated financial
position, results of operations or cash flows; however, because
of the inherent uncertainty of litigation, we cannot provide
assurance that the resolution of any particular claim or
proceeding to which we are a party will not have a material
adverse effect on our consolidated financial position, results
of operations or cash flows for the period in which the
resolution occurs.
| Item 4. | Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of our stockholders during
the fourth quarter of our fiscal year ended December 31,
2009.
27
Table of Contents
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Our common stock is traded on the New York Stock Exchange under
the symbol “EXH.” The following table sets forth the
range of high and low sale prices for our common stock for the
periods indicated.
| Price | ||||||||
| High | Low | |||||||
|
Year ended December 31, 2008
|
||||||||
|
First Quarter
|
$ | 82.90 | $ | 59.83 | ||||
|
Second Quarter
|
$ | 78.77 | $ | 62.76 | ||||
|
Third Quarter
|
$ | 72.73 | $ | 30.79 | ||||
|
Fourth Quarter
|
$ | 32.09 | $ | 11.97 | ||||
|
Year ended December 31, 2009
|
||||||||
|
First Quarter
|
$ | 26.99 | $ | 14.20 | ||||
|
Second Quarter
|
$ | 23.60 | $ | 14.80 | ||||
|
Third Quarter
|
$ | 26.07 | $ | 13.69 | ||||
|
Fourth Quarter
|
$ | 26.35 | $ | 19.73 | ||||
On February 12, 2010, the closing price of our common stock
was $21.08 per share. As of February 12, 2010, there were
approximately 1,097 holders of record of our common stock.
28
Table of Contents
The performance graph below shows the cumulative total
stockholder return on our common stock and, prior to the merger,
Hanover’s common stock, compared with the S&P 500
Composite Stock Price Index (the “S&P 500 Index”)
and the Oilfield Service Index (the “OSX”) over the
five-year period beginning on December 31, 2004. The
results for the period from December 31, 2004 through
August 20, 2007, the date of the merger, reflect
Hanover’s historical common stock price adjusted for
Hanover’s 0.325 merger exchange ratio. We have used
Hanover’s historical common stock price during this period
because Hanover was determined to be the acquirer for accounting
purposes in the merger. The results for the period from
August 21, 2007, when our common stock began trading on the
New York Stock Exchange, through December 31, 2009 reflect
the price of our common stock. The results are based on an
investment of $100 in each of Hanover’s common stock, the
S&P 500 Index and the OSX. The graph assumes the
reinvestment of dividends and adjusts all closing prices and
dividends for stock splits.
Comparison
of Five Year Cumulative Total Return
The performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference
this Annual Report on
Form 10-K
into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that we
specifically incorporate this information by reference, and
shall not otherwise be deemed filed under those Acts.
29
Table of Contents
We have never declared or paid any cash dividends to our
stockholders and do not anticipate paying such dividends in the
foreseeable future. The board of directors anticipates that all
cash flow generated from operations in the foreseeable future
will be retained and used to pay down debt, repurchase company
stock, or develop and expand our business, except for a portion
of the cash flow generated from operations of the Partnership
which will be used to pay a distribution on its units not owned
by us. Any future determinations to pay cash dividends to our
stockholders will be at the discretion of the board of directors
and will be dependent upon our results of operations and
financial condition, credit and loan agreements in effect at
that time and other factors deemed relevant by the board of
directors.
In August 2007, our board of directors authorized the repurchase
of up to $200 million of our common stock through August
2009. In December 2008, our board of directors increased the
share repurchase program, from $200 million to
$300 million, and extended the expiration date of the
authorization, from August 19, 2009 to December 15,
2010. Under the stock repurchase program, we may repurchase
shares in open market purchases or in privately negotiated
transactions in accordance with applicable insider trading and
other securities laws and regulations. We may also implement all
or part of the repurchases under a
Rule 10b5-1
trading plan, so as to provide the flexibility to extend our
share repurchases beyond the quarterly purchase window. During
the year ended December 31, 2009, we did not repurchase any
shares of our common stock under this program. Since the program
was initiated, we have repurchased 5,416,221 shares of our
common stock at an aggregate cost of $199.9 million.
For disclosures regarding securities authorized for issuance
under equity compensation plans, see Part III, Item 12
(“Security Ownership of Certain Beneficial Owners and
Management”) of this report.
30
Table of Contents
| Item 6. | Selected Financial Data |
In the table below we have presented certain selected financial
data for Exterran for each of the five years in the period ended
December 31, 2009, which has been derived from our audited
consolidated financial statements. The following information
should be read together with Management’s Discussion and
Analysis of Financial Condition and Results of Operations and
Financial Statements which are contained in this report (in
thousands, except per share data):
| Years Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007(1) | 2006(1) | 2005(1) | ||||||||||||||||
|
|
||||||||||||||||||||
|
Revenues
|
$ | 2,715,601 | $ | 3,024,119 | $ | 2,425,788 | $ | 1,490,234 | $ | 1,204,164 | ||||||||||
|
Gross margin(2)
|
915,582 | 1,025,732 | 754,466 | 482,460 | 400,505 | |||||||||||||||
|
Selling, general and administrative
|
337,620 | 352,899 | 247,983 | 183,713 | 165,987 | |||||||||||||||
|
Merger and integration expenses
|
— | 11,384 | 46,201 | — | — | |||||||||||||||
|
Depreciation and amortization
|
352,785 | 330,886 | 232,492 | 160,190 | 153,761 | |||||||||||||||
|
Fleet impairment(3)
|
90,991 | 24,109 | 61,945 | — | — | |||||||||||||||
|
Restructuring charges(4)
|
20,326 | — | — | — | — | |||||||||||||||
|
Goodwill impairment(5)
|
150,778 | 1,148,371 | — | — | — | |||||||||||||||
|
Interest expense
|
122,845 | 129,784 | 130,303 | 123,541 | 146,877 | |||||||||||||||
|
Debt extinguishment charges(6)
|
— | — | 70,150 | 5,902 | 7,318 | |||||||||||||||
|
Equity in (income) loss of non-consolidated affiliates
|
91,154 | (23,974 | ) | (12,498 | ) | (19,430 | ) | (21,466 | ) | |||||||||||
|
Other (income) expense, net(7)
|
(53,360 | ) | (3,118 | ) | (19,771 | ) | (45,364 | ) | (1,675 | ) | ||||||||||
|
Provision for income taxes
|
51,667 | 37,219 | 1,558 | 13,181 | 20,194 | |||||||||||||||
|
Income (loss) from continuing operations
|
(249,224 | ) | (981,828 | ) | (3,897 | ) | 60,727 | (70,491 | ) | |||||||||||
|
Income (loss) from discontinued operations, net of tax(5)
|
(296,239 | ) | 46,752 | 44,773 | 25,426 | 32,474 | ||||||||||||||
|
Cumulative effect of accounting change, net of tax
|
— | — | — | 370 | — | |||||||||||||||
|
Net income attributable to noncontrolling interest
|
3,944 | 12,273 | 6,307 | — | — | |||||||||||||||
|
Net income (loss) attributable to Exterran stockholders
|
(549,407 | ) | (947,349 | ) | 34,569 | 86,523 | (38,017 | ) | ||||||||||||
|
Income (loss) per share from continuing operations(8):
|
||||||||||||||||||||
|
Basic
|
$ | (4.12 | ) | $ | (15.39 | ) | $ | (0.22 | ) | $ | 1.86 | $ | (2.37 | ) | ||||||
|
Diluted
|
$ | (4.12 | ) | $ | (15.39 | ) | $ | (0.22 | ) | $ | 1.81 | $ | (2.37 | ) | ||||||
|
Weighted average common and equivalent shares outstanding(8):
|
||||||||||||||||||||
|
Basic
|
61,406 | 64,580 | 45,580 | 32,883 | 29,756 | |||||||||||||||
|
Diluted
|
61,406 | 64,580 | 45,580 | 36,411 | 29,756 | |||||||||||||||
|
Other Financial Data:
|
||||||||||||||||||||
|
Capital expenditures:
|
||||||||||||||||||||
|
Contract Operations Equipment:
|
||||||||||||||||||||
|
Growth
|
$ | 247,272 | $ | 257,119 | $ | 169,613 | $ | 105,148 | $ | 70,976 | ||||||||||
|
Maintenance
|
83,353 | 130,980 | 109,182 | 80,352 | 59,306 | |||||||||||||||
|
Other
|
38,276 | 77,637 | 44,003 | 46,802 | 14,020 | |||||||||||||||
|
Cash flows provided by (used in):
|
||||||||||||||||||||
|
Operating activities
|
$ | 477,518 | $ | 486,055 | $ | 238,712 | $ | 206,557 | $ | 124,509 | ||||||||||
|
Investing activities
|
(301,000 | ) | (582,901 | ) | (302,268 | ) | (168,168 | ) | (104,027 | ) | ||||||||||
|
Financing activities
|
(224,004 | ) | 86,398 | 135,727 | (18,134 | ) | (6,890 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 83,745 | $ | 123,906 | $ | 144,801 | $ | 69,861 | $ | 47,339 | ||||||||||
|
Working capital(9)
|
545,855 | 676,363 | 598,148 | 283,730 | 312,893 | |||||||||||||||
|
Property, plant and equipment, net
|
3,404,354 | 3,436,222 | 3,306,303 | 1,672,938 | 1,630,211 | |||||||||||||||
|
Total assets
|
5,292,948 | 6,092,627 | 6,863,523 | 3,070,889 | 2,862,996 | |||||||||||||||
|
Debt
|
2,260,936 | 2,512,429 | 2,333,924 | 1,369,931 | 1,478,948 | |||||||||||||||
|
Total Exterran stockholders’ equity
|
1,639,997 | 2,043,786 | 3,162,260 | 1,014,282 | 909,782 | |||||||||||||||
31
Table of Contents
| (1) | Universal’s financial results have been included in our consolidated financial statements after the merger date on August 20, 2007. Financial information for periods prior to 2007 are not comparable with 2007 through 2009 due to the impact of this business combination on our financial position and results of operation. See Note 3 to the Financial Statements for a description of the merger. | |
| (2) | Gross margin, a non-GAAP financial measure, is defined, reconciled to net income (loss) and discussed further in Part II, Item 6 (“Selected Financial Data — Non-GAAP Financial Measure”) of this report. | |
| (3) | For the year ended December 31, 2009: As a result of a decline in market conditions and operating horsepower in North America during 2009, we reviewed the idle compression assets used in our contract operations segments for units that are not of the type, configuration, make or model that are cost efficient to maintain and operate. As a result of that review, we determined that 1,232 units representing 264,900 horsepower would be retired from the fleet. We performed a cash flow analysis of the expected proceeds from the disposition of these units to determine the fair value of the fleet assets we will no longer utilize in our operations. The net book value of these assets exceeded the fair value by $91.0 million and was recorded as a long-lived asset impairment. | |
| For the year ended December 31, 2008: During 2008, management identified certain fleet units that will not be used in our contract operations business in the future and recorded a $1.5 million impairment at that time. During 2008, we also recorded a $1.0 million impairment related to the loss sustained on offshore units that were on platforms that capsized during Hurricane Ike. | ||
| We were involved in a project in the Cawthorne Channel in Nigeria (the “Cawthorne Channel Project”), to process natural gas from certain Nigerian oil and natural gas fields. As a result of operational difficulties and taking into consideration the project’s historical performance and declines in commodity prices, we undertook an assessment of our estimated future cash flows from the Cawthorne Channel Project. Based on the analysis, we did not believe that we would recover all of our remaining investment in the Cawthorne Channel Project. Accordingly, we recorded an impairment charge of $21.6 million in our 2008 results to reduce the carrying amount of our assets associated with the Cawthorne Channel Project to their estimated fair value, which is reflected in Fleet impairment expense in our consolidated statements of operations. | ||
| For the year ended December 31, 2007: Following the completion of the merger, management reviewed our fleet for units that would not be of the type, configuration, make or model that management would want to continue to offer after the merger with Universal due to the cost to refurbish the equipment, the incremental costs of maintaining more types of equipment and the increased financial flexibility of the new company to build new units in the configuration currently in demand by our customers. As a result of this review, we recorded an impairment to our fleet assets of $61.9 million in 2007. | ||
| (4) | As a result of the reduced level of demand for our products and services, our management approved a plan in March 2009 to close certain facilities to consolidate our compression fabrication activities in our fabrication segment. These actions were the result of significant fabrication capacity stemming from the 2007 merger that created Exterran and the lack of consolidation of this capacity since that time, as well as the anticipated continuation of current weaker global economic and energy industry conditions. The consolidation of those compression fabrication activities was completed in September 2009. In August 2009, we announced our plan to consolidate certain fabrication operations in Houston including the closure of two facilities in Texas. However, due to a subsequent improvement in bookings for certain of our production and processing equipment products, we ultimately decided to close only one of the fabrication facilities in Texas. In addition, we implemented cost reductions programs during 2009 primarily related to workforce reductions across all of our segments. | |
| (5) | As discussed in Note 2 to the Financial Statements, on June 2, 2009, PDVSA commenced taking possession of our assets and operations in Venezuela. By the end of the second quarter of 2009, PDVSA had assumed control over substantially all of our assets and operations in Venezuela. As a result of PDVSA taking possession of substantially all of our assets and operations in Venezuela, we recorded asset impairments totaling $329.7 million, primarily related to receivables, inventory, fixed assets and goodwill, during the year ended December 31, 2009, which is reflected in Income (loss) from discontinued |
32
Table of Contents
| operations. In addition, we determined that this event could indicate an impairment of our international contract operations and aftermarket services reporting units’ goodwill and therefore performed a goodwill impairment test for these reporting units in the second quarter of 2009. Our international contract operations reporting unit failed the goodwill impairment test and we recorded an impairment of goodwill in our international contract operations reporting unit of $150.8 million in the second quarter of 2009. The $32.6 million of goodwill related to our Venezuela contract operations and aftermarket services businesses was also written off in the second quarter of 2009 as part of our loss from discontinued operations. The decrease in value of our international contract operations reporting unit was primarily caused by the loss of our operations in Venezuela. | ||
| In 2008, there were severe disruptions in the credit and capital markets and reductions in global economic activity, which had significant adverse impacts on stock markets and oil-and-gas-related commodity prices, both of which we believe contributed to a significant decline in our company’s stock price and corresponding market capitalization. We determined that the deepening recession and financial market crisis, along with the continuing decline in the market value of our common stock, resulted in a $1,148.4 million impairment of all of the goodwill in our North America contract operations reporting unit. See Note 9 to the Financial Statements for further discussion of this goodwill impairment charge. | ||
| (6) | In the third quarter of 2007, we refinanced a significant portion of Universal’s and Hanover’s debt that existed before the merger. We recorded $70.2 million of debt extinguishment charges related to this refinancing. The charges related to a call premium and tender fees paid to retire various Hanover notes that were part of the debt refinancing and a charge of $16.4 million related to the write-off of deferred financing costs in conjunction with the refinancing. | |
| (7) | During the year ended December 31, 2009, we recorded a pre-tax gain of approximately $20.8 million on the sale of our investment in the subsidiary that owns the barge mounted processing plant and certain other related assets used on the Cawthorne Channel Project and a foreign currency translation gain of $16.7 million. Our foreign currency translation gains and losses are primarily related to the remeasurement of our international subsidiaries’ net assets exposed to changes in foreign currency rates. | |
| During the year ended December 31, 2006, we recorded a pre-tax gain of $28.4 million on the sale of our U.S. amine treating business and an $8.0 million pre-tax gain on the sale of assets used in our fabrication facility in Canada. | ||
| (8) | As a result of the merger between Hanover and Universal, each outstanding share of common stock of Universal was converted into one share of Exterran common stock and each outstanding share of Hanover common stock was converted into 0.325 shares of Exterran common stock. All share and per share amounts have been retroactively adjusted to reflect the conversion ratio of Hanover common stock for all periods presented. | |
| (9) | Working capital is defined as current assets from continuing operations minus current liabilities from continuing operations. |
33
Table of Contents
NON-GAAP FINANCIAL
MEASURE
We define gross margin as total revenue less cost of sales
(excluding depreciation and amortization expense). Gross margin
is included as a supplemental disclosure because it is a primary
measure used by our management as it represents the results of
revenue and cost of sales (excluding depreciation and
amortization expense), which are key components of our
operations. We believe gross margin is important because it
focuses on the current performance of our operations and
excludes the impact of the prior historical costs of the assets
acquired or constructed that are utilized in those operations,
the indirect costs associated with selling, general and
administrative (“SG&A”) activities, the impact of
our financing methods and income taxes. Depreciation expense may
not accurately reflect the costs required to maintain and
replenish the operational usage of our assets and therefore may
not portray the costs from current operating activity. As an
indicator of our operating performance, gross margin should not
be considered an alternative to, or more meaningful than, net
income (loss) as determined in accordance with generally
accepted accounting principles (“GAAP”). Our gross
margin may not be comparable to a similarly titled measure of
another company because other entities may not calculate gross
margin in the same manner.
Gross margin has certain material limitations associated with
its use as compared to net income (loss). These limitations are
primarily due to the exclusion of interest expense, depreciation
and amortization expense, SG&A expense, impairments and
restructuring charges. Each of these excluded expenses is
material to our consolidated results of operations. Because we
intend to finance a portion of our operations through
borrowings, interest expense is a necessary element of our costs
and our ability to generate revenue. Additionally, because we
use capital assets, depreciation expense is a necessary element
of our costs and our ability to generate revenue, and SG&A
expenses are necessary costs to support our operations and
required corporate activities. To compensate for these
limitations, management uses this non-GAAP measure as a
supplemental measure to other GAAP results to provide a more
complete understanding of our performance.
The following table reconciles our net income (loss) to gross
margin (in thousands):
| Years Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
|
Net income (loss)
|
$ | (545,463 | ) | $ | (935,076 | ) | $ | 40,876 | $ | 86,523 | $ | (38,017 | ) | |||||||
|
Selling, general and administrative
|
337,620 | 352,899 | 247,983 | 183,713 | 165,987 | |||||||||||||||
|
Merger and integration expenses
|
— | 11,384 | 46,201 | — | — | |||||||||||||||
|
Depreciation and amortization
|
352,785 | 330,886 | 232,492 | 160,190 | 153,761 | |||||||||||||||
|
Fleet impairment
|
90,991 | 24,109 | 61,945 | — | — | |||||||||||||||
|
Restructuring charges
|
20,326 | — | — | — | — | |||||||||||||||
|
Goodwill impairment
|
150,778 | 1,148,371 | — | — | — | |||||||||||||||
|
Interest expense
|
122,845 | 129,784 | 130,303 | 123,541 | 146,877 | |||||||||||||||
|
Debt extinguishment charges
|
— | — | 70,150 | 5,902 | 7,318 | |||||||||||||||
|
Equity in (income) loss of non-consolidated affiliates
|
91,154 | (23,974 | ) | (12,498 | ) | (19,430 | ) | (21,466 | ) | |||||||||||
|
Other (income) expense, net
|
(53,360 | ) | (3,118 | ) | (19,771 | ) | (45,364 | ) | (1,675 | ) | ||||||||||
|
Provision for income taxes
|
51,667 | 37,219 | 1,558 | 13,181 | 20,194 | |||||||||||||||
|
(Income) loss from discontinued operations, net of tax
|
296,239 | (46,752 | ) | (44,773 | ) | (25,426 | ) | (32,474 | ) | |||||||||||
|
Cumulative effect of accounting change, net of tax
|
— | — | — | (370 | ) | — | ||||||||||||||
|
Gross margin
|
$ | 915,582 | $ | 1,025,732 | $ | 754,466 | $ | 482,460 | $ | 400,505 | ||||||||||
34
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The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with our consolidated financial statements, and the
notes thereto, and the other financial information appearing
elsewhere in this report. The following discussion includes
forward-looking statements that involve certain risks and
uncertainties. See Disclosure Regarding Forward-Looking
Statements and Risk Factors of this report.
Overview
We are a global market leader in the full service natural gas
compression business and a premier provider of operations,
maintenance, service and equipment for oil and natural gas
production, processing and transportation applications. Our
global customer base consists of companies engaged in all
aspects of the oil and natural gas industry, including large
integrated oil and natural gas companies, national oil and
natural gas companies, independent producers and natural gas
processors, gatherers and pipelines. We operate in three primary
business lines: contract operations, fabrication and aftermarket
services. In our contract operations business line, we own a
fleet of natural gas compression equipment and crude oil and
natural gas production and processing equipment that we utilize
to provide operations services to our customers. In our
fabrication business line, we fabricate and sell equipment
similar to the equipment that we own and utilize to provide
contract operations to our customers. We also fabricate the
equipment utilized in our contract operations services. In
addition, our fabrication business line provides engineering,
procurement and construction services primarily related to the
manufacturing of critical process equipment for refinery and
petrochemical facilities, the construction of tank farms and the
construction of evaporators and brine heaters for desalination
plants. In our Total Solutions projects, we provide the
engineering design, project management, procurement and
construction services necessary to incorporate our products into
complete production, processing and compression facilities.
Total Solutions products are offered to our customers on a
contract operations or on a sale basis. In our aftermarket
services business line, we sell parts and components and provide
operations, maintenance, overhaul and reconfiguration services
to customers who own compression, production, processing, gas
treating and other equipment.
Hanover
and Universal Merger
On August 20, 2007, Hanover and Universal completed their
business combination pursuant to a merger. As a result of the
merger, each of Universal and Hanover became our wholly-owned
subsidiary, and Universal merged with and into us. Hanover was
determined to be the acquirer for accounting purposes and,
therefore, our financial statements and the financial
information included herein reflect Hanover’s historical
results for the periods prior to the merger date. For more
information regarding the merger, see Note 3 to the
Financial Statements.
Industry
Conditions and Trends
Our business environment and corresponding operating results are
affected by the level of energy industry spending for the
exploration, development and production of oil and natural gas
reserves. Spending by oil and natural gas exploration and
production companies is dependent upon these companies’
forecasts regarding the expected future supply and demand for,
and future pricing of, oil and natural gas products as well as
their estimates of risk-adjusted costs to find, develop and
produce reserves. Although we believe our contract operations
business is typically less impacted by commodity prices than
certain other energy service products and services, changes in
oil and natural gas exploration and production spending will
normally result in changes in demand for our products and
services.
Natural Gas Consumption.
Natural gas
consumption in the U.S. for the twelve months ended
November 30, 2009 decreased by approximately 2% compared to
the twelve months ended November 30, 2008. Total natural
gas consumption in the U.S. is projected by the EIA to
increase by 0.4% in both 2010 and 2011, and is expected to
increase by an average of 0.7% per year until 2030. Total
natural gas consumption worldwide is projected to increase by an
average of 2.4% per year until 2030, according to the EIA.
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In 2008, the U.S. accounted for an estimated annual
production of approximately 20 trillion cubic feet of natural
gas, or 19% of the worldwide total of approximately 110 trillion
cubic feet. The EIA estimates that the U.S.’s natural gas
production level will be approximately 23 trillion cubic feet in
2030, or 15% of the worldwide total of approximately 153
trillion cubic feet.
Natural Gas Compression Services Industry.
We
believe the market for our products in the U.S. will
continue to have growth opportunities over time due to the
following factors, among others:
| • | aging producing natural gas fields will require more compression to continue producing the same volume of natural gas; and | |
| • | increased production from unconventional sources, such as tight sands, shales and coalbeds. |
While the international natural gas contract compression
services market is currently smaller than the U.S. market,
we believe there are growth opportunities in international
demand for our products due to the following factors:
| • | implementation of international environmental and conservation laws preventing the practice of flaring natural gas and recognition of natural gas as a clean air fuel; | |
| • | a desire by a number of oil exporting nations to replace oil with natural gas as a fuel source in local markets to allow greater export of oil; | |
| • | increasing development of pipeline infrastructure, particularly in Latin America and Asia, necessary to transport natural gas to local markets; and | |
| • | growing demand for electrical power generation, for which the fuel of choice tends to be natural gas. |
Our
Performance Trends and Outlook
Our revenue, earnings and financial position are affected by,
among other things, market conditions that impact demand and
pricing for natural gas compression and oil and natural gas
production and processing and our customers’ decisions
regarding whether to utilize our products and services rather
than purchase equipment or engage our competitors. In
particular, many of our North America contract operations
agreements with customers have short initial terms; we cannot be
certain that these contracts will be renewed after the end of
the initial contractual term, and any such nonrenewal, or
renewal at a reduced rate, could adversely impact our results of
operations. However, we believe that, barring a significant and
extended worldwide recession, industry activity outside of North
America should be less affected given the longer-term nature of
oil and natural gas infrastructure development projects in
international markets.
In North America, we believe that the current economic
environment and the available supply of idle and underutilized
compression equipment owned by our customers and competitors
will continue to negatively impact our ability to improve our
North America contract operations horsepower utilization and
revenues in the near term. In North America, our total operating
horsepower decreased by approximately 17% from December 31,
2008 to December 31, 2009, and we expect further horsepower
declines into 2010. In international markets, we expect the
start-up
of
projects in our contract operations backlog will result in an
increase in revenues in our international contract operations
business in 2010 compared to 2009. Additionally, we believe
there will continue to be demand for our contract operations and
Total Solutions projects in international markets, and we expect
to have opportunities to grow our international business through
our contract operations, aftermarket services and fabrication
business segments.
As industry capital spending declined in 2009, our fabrication
business segment experienced a reduction in demand. This decline
in demand for our fabrication products led to a reduction in our
fabrication backlog and revenue, and continued reductions in
industry capital spending may further reduce our fabrication
backlog and revenue. Our reduction in fabrication backlog has
also been driven by shorter lead times on delivery of major
components from our suppliers and, in turn, our lead times in
delivering our products to customers.
Given the global recession and its impact on activity levels,
the matching of our costs and capacity to business levels
continues to be challenging. We have taken steps to match our
operating costs to current operating
36
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levels and will continue to monitor our expected business
levels. For example, in March 2009 we announced that we approved
a plan to consolidate our compression fabrication operations,
and in May 2009 we announced that we would be reducing operating
and general and administrative costs, including headcount
reductions, in all facets of our business. Additionally, in
August 2009, we announced a plan to further consolidate certain
of our fabrication operations.
Our level of capital spending depends on the demand for our
products and services and the equipment we require to render
services to our customers. Although we are not able at this time
to predict the final impact of the current market and industry
conditions on our business, our level of capital investment in
our contract operations fleet assets has declined and, based on
current market conditions, we expect that net cash provided by
operating activities will be in excess of our requirements to
finance our capital expenditures and scheduled debt repayments
through December 31, 2010.
We intend for the Partnership to be the primary vehicle for the
long-term growth of our U.S. contract operations business.
In November 2009, the Partnership acquired from us additional
contract operations customer service agreements with 18
customers and a fleet of approximately 900 compressor units used
to provide compression services under those agreements. We
intend to continue to contribute over time additional
U.S. contract operations customer contracts and equipment
to the Partnership in exchange for cash, the Partnership’s
assumption of our debt
and/or
our
receipt of additional interests in the Partnership. Such
transactions would depend on, among other things, market and
economic conditions, our ability to reach agreement with the
Partnership regarding the terms of any purchase and the
availability to the Partnership of debt and equity capital on
reasonable terms.
Certain
Key Challenges and Uncertainties
Market conditions in the natural gas industry, competition in
the natural gas compression industry and the risks inherent in
our on-going international expansion continue to represent key
challenges and uncertainties. In addition to these challenges,
we believe the following represent some of the key challenges
and uncertainties we will face in the near future:
North America Compression Fleet
Utilization.
Our ability to increase our revenues
in our North America contract operations business is dependent
in large part on our ability to increase our utilization of our
idle fleet. In North America, we believe that the current
economic environment and the available supply of idle and
underutilized compression equipment owned by our customers and
competitors will continue to negatively impact our ability to
improve our North America contract operations horsepower
utilization and revenues in the near term. Our total North
America operating horsepower decreased by approximately 17% from
December 31, 2008 to December 31, 2009, and we expect
further horsepower declines into 2010. We believe the decrease
in utilization and revenues in North America has been the result
of reduced commodity prices and energy activity, an excess
supply of gas compression equipment in the industry, and the
rationalization of compression equipment by our customers that
has included replacing outsourced compression units with
customer-owned equipment and downsizing compression units where
excess horsepower capacity existed.
Execution on Larger Contract Operations and Fabrication
Projects.
As our business has grown, the size and
scope of some of the contracts with our customers has increased.
This increase in size and scope can translate into more
technically challenging conditions
and/or
performance specifications. Contracts with our customers
generally specify delivery dates, performance criteria and
penalties for our failure to perform. Our success on such
projects is one of our key challenges. If we do not timely and
cost effectively execute on such larger projects, our results of
operations and cash flows could be negatively impacted.
Labor.
Both in North America and
internationally, we believe our ability to hire, train and
retain qualified personnel continues to be challenging and
important. Although we have been able to satisfy our personnel
needs thus far, retaining employees continues to be a challenge.
To increase retention of qualified operating personnel, we have
instituted programs that enhance skills and provide on-going
training. Our ability to continue our growth will depend in part
on our success in hiring, training and retaining these employees.
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Table of Contents
Decline in Activity in the Global Energy
Market.
Our results of operations depend upon the
level of activity in the global energy market, including natural
gas development, production, processing and transportation. Oil
and natural gas prices and the level of drilling and exploration
activity can be volatile. For example, oil and natural gas
exploration and development activity and the number of well
completions typically decline when there is a significant
reduction in oil and natural gas prices or significant
instability in energy markets. We believe the decrease in
activity levels in the energy industry in the U.S. as
compared to 2008 may continue to negatively impact the
level of capital spending by our customers and, therefore, our
business activity in the near term.
Summary
of Results
As discussed in Note 2 to the Financial Statements of this
report, the results from continuing operations for all periods
presented exclude the results of our Venezuela international
contract operations and aftermarket services businesses. Those
results are now reflected in discontinued operations for all
periods presented.
Net income (loss) attributable to Exterran
stockholders.
We recorded a consolidated net loss
attributable to Exterran stockholders of $549.4 million for
the year ended December 31, 2009, as compared to a net loss
of $947.3 million for the year ended December 31, 2008
and consolidated net income of $34.6 million for the year
ended December 31, 2007. Our results for the years ended
December 31, 2009, 2008 and 2007 were affected by charges
and events that may not necessarily be indicative of our core
operations or our future prospects and impact comparability
between years.
Results by Business Segment.
The following
table summarizes revenue, cost of sales and gross margin
percentages (defined as revenue less cost of sales, excluding
depreciation and amortization expense, divided by revenue) for
each of our business segments (dollars in thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Revenue:
|
||||||||||||
|
North America Contract Operations
|
$ | 695,315 | $ | 790,573 | $ | 551,140 | ||||||
|
International Contract Operations
|
391,995 | 379,817 | 239,115 | |||||||||
|
Aftermarket Services
|
308,873 | 364,157 | 257,484 | |||||||||
|
Fabrication
|
1,319,418 | 1,489,572 | 1,378,049 | |||||||||
| $ | 2,715,601 | $ | 3,024,119 | $ | 2,425,788 | |||||||
|
Cost of sales (excluding depreciation and amortization expense):
|
||||||||||||
|
North America Contract Operations
|
$ | 298,714 | $ | 341,865 | $ | 232,238 | ||||||
|
International Contract Operations
|
149,253 | 144,906 | 91,687 | |||||||||
|
Aftermarket Services
|
245,886 | 291,560 | 202,817 | |||||||||
|
Fabrication
|
1,106,166 | 1,220,056 | 1,144,580 | |||||||||
| $ | 1,800,019 | $ | 1,998,387 | $ | 1,671,322 | |||||||
|
Gross margin percentage:
|
||||||||||||
|
North America Contract Operations
|
57% | 57% | 58% | |||||||||
|
International Contract Operations
|
62% | 62% | 62% | |||||||||
|
Aftermarket Services
|
20% | 20% | 21% | |||||||||
|
Fabrication
|
16% | 18% | 17% | |||||||||
38
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Operating
Highlights
The following tables summarize our total available horsepower,
operating horsepower, horsepower utilization percentages and
fabrication backlog (horsepower in thousands and dollars in
millions):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Total Available Horsepower (at period end):
|
||||||||
|
North America
|
4,321 | 4,570 | ||||||
|
International
|
1,234 | 1,177 | ||||||
|
Total
|
5,555 | 5,747 | ||||||
|
Total Operating Horsepower (at period end):
|
||||||||
|
North America
|
2,867 | 3,455 | ||||||
|
International
|
1,032 | 1,060 | ||||||
|
Total
|
3,899 | 4,515 | ||||||
|
Total Operating Horsepower (average during the year):
|
||||||||
|
North America
|
3,143 | 3,501 | ||||||
|
International
|
1,033 | 1,038 | ||||||
|
Total
|
4,176 | 4,539 | ||||||
|
Horsepower Utilization (at period end):
|
||||||||
|
North America
|
66% | 76% | ||||||
|
International
|
84% | 90% | ||||||
|
Total
|
70% | 79% | ||||||
| December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Compressor and Accessory Fabrication Backlog
|
$ | 296.9 | $ | 395.5 | $ | 321.9 | ||||||
|
Production and Processing Equipment Fabrication Backlog
|
515.6 | 732.7 | 787.6 | |||||||||
|
Fabrication Backlog
|
$ | 812.5 | $ | 1,128.2 | $ | 1,109.5 | ||||||
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Summary
Revenue.
Revenue for the year ended
December 31, 2009 decreased 10% to $2,715.6 million
from $3,024.1 million for the year ended December 31,
2008. The decrease in revenue for the year ended
December 31, 2009 primarily related to reduced revenue in
our North America contract operations, aftermarket services and
fabrication business segments caused by deterioration in market
conditions.
Net income (loss) attributable to Exterran
stockholders.
Net loss attributable to Exterran
stockholders for the year ended December 31, 2009 was
$549.4 million, or a decrease of 42%, as compared to net
loss attributable to Exterran stockholders of
$947.3 million for the year ended December 31, 2008.
Our net loss attributable to
39
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Exterran stockholders for the year ended December 31, 2009
was impacted by deterioration in market conditions as well as
the charges listed below.
Net income (loss) attributable to Exterran stockholders for the
years ended December 31, 2009 and 2008 was impacted by the
following charges (in thousands):
|
Years Ended
|
||||||||
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Goodwill impairment
|
$ | 150,778 | $ | 1,148,371 | ||||
|
Fleet impairment
|
90,991 | 24,109 | ||||||
|
Restructuring charges
|
20,326 | — | ||||||
|
Merger and integration expenses
|
— | 11,384 | ||||||
|
Investments in non-consolidated affiliates impairment (recorded
in Equity in (income) loss of non-consolidated affiliates)
|
96,593 | — | ||||||
|
Loss attributable to expropriation (recorded in Income (loss)
from discontinued operations, net of tax)
|
329,685 | — | ||||||
|
Total
|
$ | 688,373 | $ | 1,183,864 | ||||
Summary
of Business Segment Results
North
America Contract Operations
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2009 | 2008 | (Decrease) | ||||||||||
|
Revenue
|
$ | 695,315 | $ | 790,573 | (12 | )% | ||||||
|
Cost of sales (excluding depreciation and amortization expense)
|
298,714 | 341,865 | (13 | )% | ||||||||
|
Gross margin
|
$ | 396,601 | $ | 448,708 | (12 | )% | ||||||
|
Gross margin percentage
|
57% | 57% | 0 | % | ||||||||
The decrease in revenue and gross margin (defined as revenue
less cost of sales, excluding depreciation and amortization
expense) was primarily due to a 10% decrease in average
operating horsepower and a 4% reduction in our revenue per
average operating horsepower in the year ended December 31,
2009 compared to the year ended December 31, 2008. Gross
margin, a non-GAAP financial measure, is reconciled, in total,
to net income (loss), its most directly comparable financial
measure calculated and presented in accordance with GAAP in
Selected Financial Data — Non-GAAP Financial
Measure in Part II, Item 6 of this report. Our average
operating horsepower declined due to a deterioration in market
conditions and natural gas prices in North America. This
deterioration and an increased competitive environment resulted
in pricing pressure in the year ended December 31, 2009.
Revenue for the year ended December 31, 2009 benefited from
the inclusion of an additional $12.3 million in revenue
from EMIT Water Discharge Technology, LLC (“EMIT”),
which we acquired in July 2008.
40
Table of Contents
International
Contract Operations
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2009 | 2008 | (Decrease) | ||||||||||
|
Revenue
|
$ | 391,995 | $ | 379,817 | 3 | % | ||||||
|
Cost of sales (excluding depreciation and amortization expense)
|
149,253 | 144,906 | 3 | % | ||||||||
|
Gross margin
|
$ | 242,742 | $ | 234,911 | 3 | % | ||||||
|
Gross margin percentage
|
62% | 62% | 0 | % | ||||||||
The increase in revenues in the year ended December 31,
2009 compared to the year ended December 31, 2008 was
primarily caused by an increase in revenue in the Middle East,
Brazil and Indonesia of approximately $6.9 million,
$5.7 million and $9.2 million, respectively, due to
the start up of new contracts in these regions. This was
partially offset by a $7.2 million decrease in revenues in
Mexico as a result of the expiration of a large contract in 2009.
Aftermarket
Services
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2009 | 2008 | (Decrease) | ||||||||||
|
Revenue
|
$ | 308,873 | $ | 364,157 | (15 | )% | ||||||
|
Cost of sales (excluding depreciation and amortization expense)
|
245,886 | 291,560 | (16 | )% | ||||||||
|
Gross margin
|
$ | 62,987 | $ | 72,597 | (13 | )% | ||||||
|
Gross margin percentage
|
20% | 20% | 0 | % | ||||||||
The decrease in revenue, cost of sales and gross margin was due
to lower activity levels in North America in 2009 caused by a
decline in market conditions.
Fabrication
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2009 | 2008 | (Decrease) | ||||||||||
|
Revenue
|
$ | 1,319,418 | $ | 1,489,572 | (11 | )% | ||||||
|
Cost of sales (excluding depreciation and amortization expense)
|
1,106,166 | 1,220,056 | (9 | )% | ||||||||
|
Gross margin
|
$ | 213,252 | $ | 269,516 | (21 | )% | ||||||
|
Gross margin percentage
|
16% | 18% | (2 | )% | ||||||||
The decrease in revenue in the year ended December 31, 2009
compared to the year ended December 31, 2008 was primarily
due to a reduction of $148.5 million and
$113.3 million in compressor and accessory fabrication
product line revenue and production and processing product line
revenue, respectively. The decrease in fabrication revenue was
due to the completion of various projects and a reduction in new
bookings caused by weaker market conditions in 2009, partially
offset by a $91.6 million increase in installation product
line sales resulting from the completion of installation
projects during the year ended December 31, 2009. Our gross
margin percentage in the year ended December 31, 2009 was
negatively impacted by the increase in installation product line
sales which had lower margins compared to the rest of the
fabrication segment, the deterioration in market conditions
impacting our fabrication business and under-absorption of
overhead costs resulting from the decrease in activity.
41
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Costs and
expenses
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2009 | 2008 | (Decrease) | ||||||||||
|
Selling, general and administrative
|
$ | 337,620 | $ | 352,899 | (4 | )% | ||||||
|
Merger and integration expenses
|
— | 11,384 | (100 | )% | ||||||||
|
Depreciation and amortization
|
352,785 | 330,886 | 7 | % | ||||||||
|
Fleet impairment
|
90,991 | 24,109 | 277 | % | ||||||||
|
Restructuring charges
|
20,326 | — | n/a | |||||||||
|
Goodwill impairment
|
150,778 | 1,148,371 | (87 | )% | ||||||||
|
Interest expense
|
122,845 | 129,784 | (5 | )% | ||||||||
|
Equity in (income) loss of non-consolidated affiliates
|
91,154 | (23,974 | ) | (480 | )% | |||||||
|
Other (income) expense, net
|
(53,360 | ) | (3,118 | ) | 1,611 | % | ||||||
The decrease in SG&A expenses was primarily due to our
efforts to reduce costs in response to lower business activity
levels during the year ended December 31, 2009 compared to
the year ended December 31, 2008. As a percentage of
revenue, SG&A expense for each of the years ended
December 31, 2009 and 2008 was 12%.
During the year ended December 31, 2008, merger and
integration expenses related to the merger between Hanover and
Universal were primarily comprised of professional fees,
amortization of retention bonus awards, change of control
payments and severance for employees.
The increase in depreciation and amortization expense during the
year ended December 31, 2009 compared to the year ended
December 31, 2008 was primarily the result of property,
plant and equipment additions, partially offset by a
$10.2 million decrease in amortization expense related to
finite life intangible assets resulting from the merger of
Hanover and Universal. The intangible assets from the merger are
being amortized based on the expected income to be realized from
these assets.
As a result of a decline in market conditions and operating
horsepower in North America during 2009, we reviewed the idle
compression assets used in our contract operations segments for
units that are not of the type, configuration, make or model
that are cost efficient to maintain and operate. As a result of
that review, we determined that 1,232 units representing
264,900 horsepower would be retired from the fleet. We performed
a cash flow analysis of the expected proceeds from the
disposition of these units to determine the fair value of the
fleet assets we will no longer utilize in our operations. The
net book value of these assets exceeded the fair value by
$91.0 million and was recorded as a long-lived asset
impairment. During 2008, management identified certain fleet
units that will not be used in our contract operations business
in the future and recorded a $1.5 million impairment.
During 2008, we also recorded a $1.0 million impairment
related to the loss sustained on offshore units that were on
platforms which capsized during Hurricane Ike. These impairments
are recorded in Fleet impairment expense in the consolidated
statements of operations.
We were involved in the Cawthorne Channel Project to process
natural gas from certain Nigerian oil and natural gas fields.
The area in Nigeria where the Cawthorne Channel Project was
located experienced local civil unrest and violence, and natural
gas delivery to the Cawthorne Channel Project was stopped for
significant periods of time starting in June 2006. Additionally,
in late July 2008, a vessel owned by a third party that provided
storage and splitting services for the liquids processed by our
facility was the target of a local security incident. As a
result, the Cawthorne Channel Project only operated for limited
periods of time beginning in June 2006. As a result of
operational difficulties and taking into consideration the
project’s historical performance and declines in commodity
prices, we undertook an assessment of our estimated future cash
flows from the Cawthorne Channel Project. Based on the analysis
we completed, we did not believe that we would recover all of
our remaining investment in the Cawthorne Channel Project.
Accordingly, we recorded an impairment charge of
$21.6 million in our 2008 results to reduce the carrying
amount of our assets associated with the Cawthorne Channel
Project to their estimated fair value, which is reflected in
Fleet impairment expense in our consolidated statements of
operations. During the fourth quarter of 2009, we recorded a
pre-tax gain of approximately $20.8 million on the sale of
our investment in the subsidiary that
42
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owns the barge mounted processing plant and certain other
related assets used on the Cawthorne Channel Project. This gain
is recorded in Other (income) expense, net in our consolidated
statements of operations.
Restructuring charges of $20.3 million for the year ended
December 31, 2009 were incurred due to our efforts to
adjust our costs to our forecasted business activity levels and
included facility impairments, severance and employee benefit
costs and other facility closure and moving costs resulting from
our decision to close and consolidate certain of our fabrication
facilities. See Note 15 to the Financial Statements for
further discussion of the restructuring charges.
As discussed in Note 2 to the Financial Statements, on
June 2, 2009, PDVSA commenced taking possession of our
assets and operations in Venezuela. By the end of the second
quarter of 2009, PDVSA had assumed control over substantially
all of our assets and operations in Venezuela. We determined
that this event could indicate an impairment of our
international contract operations and aftermarket services
reporting units’ goodwill and therefore performed a
goodwill impairment test for these reporting units in the second
quarter of 2009. Our international contract operations reporting
unit failed the goodwill impairment test and we recorded an
impairment of goodwill in our international contract operations
reporting unit of $150.8 million in the second quarter of
2009. During the year ended December 31, 2008 we recorded a
goodwill impairment charge of $1,148.4 million related to
our North America contract operations segment. In 2008, there
were severe disruptions in the credit and capital markets and
reductions in global economic activity which had significant
adverse impacts on stock markets and
oil-and-gas-related
commodity prices, both of which we believe contributed to a
significant decline in our stock price and corresponding market
capitalization. We determined that the deepening recession and
financial market crisis, along with the continuing decline in
the market value of our common stock, resulted in an impairment
of all the goodwill in our North America contract operations
reporting unit. See Note 9 to the Financial Statements for
further discussion of these charges.
The decrease in interest expense during the year ended
December 31, 2009 compared to the year ended
December 31, 2008, was primarily due to a decrease in our
weighted average effective interest rate, including the impact
of interest rate swaps, to 4.8% for the year ended
December 31, 2009 from 5.3% for the year ended
December 31, 2008.
The loss recorded in equity in (income) loss of non-consolidated
affiliates for the year ended December 31, 2009 was
primarily the result of the expropriation of our Venezuelan
joint ventures’ assets and operations during the six months
ended June 30, 2009. We currently do not expect to have
significant, if any, equity earnings in non-consolidated
affiliates in the future from these investments. Our
non-consolidated affiliates are expected to seek full
compensation for any and all expropriated assets and investments
under all applicable legal regimes, including investment
treaties and customary international law, which could result in
us recording a gain on our investment in future periods.
However, we are unable to predict what, if any, compensation we
ultimately will receive or when we may receive any such
compensation. See Note 8 to the Financial Statements for
further discussion of our investments in non-consolidated
affiliates.
The change in other (income) expense, net, was primarily due to
a $31.5 million increase in gains on asset sales in the
year ended December 31, 2009 and a foreign currency
translation gain of $16.7 million for the year ended
December 31, 2009 compared to a loss of $10.7 million
for the year ended December 31, 2008. Gain on asset sales
for the year ended December 31, 2009 included a pre-tax
gain of approximately $20.8 million on the sale of our
investment in the subsidiary that owns the barge mounted
processing plant and certain other related assets used on the
Cawthorne Channel Project. Our foreign currency translation
gains and losses are primarily related to the remeasurement of
our international subsidiaries’ net assets exposed to
changes in foreign currency rates. The increase in the foreign
currency translation gain for the year ended December 31,
2009 was primarily caused by changes in the translation rates
between the U.S. dollar and the Brazilian Real and
Argentine Peso.
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Income
Taxes
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2009 | 2008 | (Decrease) | ||||||||||
|
Provision for income taxes
|
$ | 51,667 | $ | 37,219 | 38.8 | % | ||||||
|
Effective tax rate
|
(26.2 | )% | (3.9 | )% | (22.3 | )% | ||||||
The increase in our provision for income taxes was primarily due
to a $14.5 million reduction in deferred tax assets
resulting from the restructuring of certain international
operations and the sale of a subsidiary, a $7.7 million
charge for unrecognized tax benefits related to uncertain tax
positions in foreign jurisdictions, and a $5.2 million
charge for valuation allowances recorded against net operating
losses of certain foreign subsidiaries. The increase was
partially offset by lower income before income taxes, excluding
$96.6 million of impairment charges reflected in equity in
income (loss) of non-consolidated affiliates and a
$150.8 million non-deductible goodwill impairment charge
related to our international contract operations segment for the
year ended December 31, 2009 and a goodwill impairment
charge of $1,148.4 million related to our North America
contract operations segment for the year ended December 31,
2008. The provision for the year ended December 31, 2009
also included an $8.4 million deferred tax benefit related
to the impairment of our investments in non-consolidated
affiliates. A $52.9 million deferred tax benefit was
recorded in our provision for the year ended December 31,
2008 for the tax deductible portion of the North America
contract operations goodwill impairment.
Discontinued
Operations
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2009 | 2008 | (Decrease) | ||||||||||
|
Income (loss) from discontinued operations, net of tax
|
$ | (296,239 | ) | $ | 46,752 | (734 | )% | |||||
On June 2, 2009, PDVSA commenced taking possession of our
assets and operations in a number of our locations in Venezuela.
By the end of the second quarter of 2009, PDVSA had assumed
control over substantially all of our assets and operations in
Venezuela. As a result of PDVSA taking possession of
substantially all of our assets and operations in Venezuela, we
recorded asset impairments totaling $329.7 million,
primarily related to receivables, inventory, fixed assets and
goodwill during the year ended December 31, 2009. These
asset impairments were partially offset by a $18.6 million
benefit primarily from the reversal of deferred income taxes
related to our Venezuelan operations in year ended
December 31, 2009 compared to a provision for income taxes
of $0.2 million in the year ended December 31, 2008.
For further information regarding the expropriation, see
Note 2 to the Financial Statements.
Noncontrolling
Interest
As of December 31, 2009, noncontrolling interest is
primarily comprised of the portion of the Partnership’s
earnings that is applicable to the limited partner interest in
the Partnership not owned by us. As of December 31, 2009,
public unitholders held a 34% ownership interest in the
Partnership.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
The results of operations for the year ended December 31,
2007 include Universal’s operations for the 134 days
from the date of the merger, August 20, 2007, through
December 31, 2007. Accordingly, these results of operations
are not representative of a full year of operating results for
Exterran.
Summary
Revenue.
Revenue for the year ended
December 31, 2008 increased 25% to $3,024.1 million
from $2,425.8 million for the year ended December 31,
2007. The increase in revenues in the year ended
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December 31, 2008 was primarily due to the inclusion of
Universal’s results for the entire period compared to the
prior year, which included Universal’s results only after
the merger date of August 20, 2007 through the end of the
period.
Net income (loss) attributable to Exterran
stockholders.
Net loss attributable to Exterran
stockholders for the year ended December 31, 2008 was
$947.3 million, or a decrease of $981.9 million, as
compared to net income attributable to Exterran stockholders of
$34.6 million for the year ended December 31, 2007.
Net loss attributable to Exterran stockholders in the year ended
December 31, 2008 includes a goodwill impairment of
$1,148.4 million ($1,095.4 million, net of tax).
Results for the year ended December 31, 2008 includes
Universal’s results for the entire 2008 year period
compared to the prior year, which included Universal’s
results only after the merger date of August 20, 2007
through the end of the period.
Net income (loss) attributable to Exterran stockholders for the
years ended December 31, 2008 and 2007 was impacted by the
following charges (in thousands):
|
Years Ended
|
||||||||
| December 31, | ||||||||
| 2008 | 2007 | |||||||
|
Goodwill impairment
|
$ | 1,148,371 | $ | — | ||||
|
Fleet impairment
|
24,109 | 61,945 | ||||||
|
Merger and integration expenses
|
11,384 | 46,201 | ||||||
|
Debt extinguishment
|
— | 70,150 | ||||||
|
Investments in non-consolidated affiliates impairment (recorded
in Equity in (income) loss of non-consolidated affiliates)
|
— | 6,743 | ||||||
|
Interest rate swap termination (recorded in Interest expense)
|
— | 6,964 | ||||||
|
Total
|
$ | 1,183,864 | $ | 192,003 | ||||
Summary
of Business Segment Results
North
America Contract Operations
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2008 | 2007 | (Decrease) | ||||||||||
|
Revenue
|
$ | 790,573 | $ | 551,140 | 43 | % | ||||||
|
Cost of sales (excluding depreciation and amortization expense)
|
341,865 | 232,238 | 47 | % | ||||||||
|
Gross margin
|
$ | 448,708 | $ | 318,902 | 41 | % | ||||||
|
Gross margin percentage
|
57 | % | 58 | % | (1 | )% | ||||||
The increase in revenue, cost of sales and gross margin (defined
as revenue less cost of sales, excluding depreciation and
amortization expense) was primarily due to the inclusion of
Universal’s results for the entire year ended
December 31, 2008 compared to the prior year, which
included Universal’s results only after the merger date of
August 20, 2007 through the end of the period. The increase
in revenues from Universal after the merger was somewhat offset
by a decrease in average utilization in 2008. Revenue for the
year ended December 31, 2008 benefited by
$13.9 million from the inclusion of the results of EMIT,
which we acquired in July 2008. The decrease in gross margin
percentage was due to higher costs for labor and consumables and
lower average utilization without a corresponding reduction in
costs, partially offset by savings that began to be realized
from the synergies of the merger.
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International
Contract Operations
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2008 | 2007 | (Decrease) | ||||||||||
|
Revenue
|
$ | 379,817 | $ | 239,115 | 59 | % | ||||||
|
Cost of sales (excluding depreciation and amortization expense)
|
144,906 | 91,687 | 58 | % | ||||||||
|
Gross margin
|
$ | 234,911 | $ | 147,428 | 59 | % | ||||||
|
Gross margin percentage
|
62 | % | 62 | % | 0 | % | ||||||
The increase in revenue, cost of sales and gross margin was
primarily due to the inclusion of Universal’s results for
the entire year ended December 31, 2008 compared to the
prior year, which included Universal’s results only after
the merger date of August 20, 2007 through the end of the
period, including an increase of approximately
$51.2 million and $36.6 million in Argentina and
Brazil, respectively, which accounted for approximately 62% of
the increase in revenue.
Aftermarket
Services
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2008 | 2007 | (Decrease) | ||||||||||
|
Revenue
|
$ | 364,157 | $ | 257,484 | 41 | % | ||||||
|
Cost of sales (excluding depreciation and amortization expense)
|
291,560 | 202,817 | 44 | % | ||||||||
|
Gross margin
|
$ | 72,597 | $ | 54,667 | 33 | % | ||||||
|
Gross margin percentage
|
20 | % | 21 | % | (1 | )% | ||||||
The increase in revenue, cost of sales and gross margin was
primarily due to the inclusion of Universal’s results for
the entire year ended December 31, 2008 compared to the
prior year, which included Universal’s results only after
the merger date of August 20, 2007 through the end of the
period. North America aftermarket services accounted for
approximately 75% of the increase in revenues. The decrease in
gross margin percentage was primarily due to reduced margins on
aftermarket services provided internationally.
Fabrication
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2008 | 2007 | (Decrease) | ||||||||||
|
Revenue
|
$ | 1,489,572 | $ | 1,378,049 | 8 | % | ||||||
|
Cost of sales (excluding depreciation and amortization expense)
|
1,220,056 | 1,144,580 | 7 | % | ||||||||
|
Gross margin
|
$ | 269,516 | $ | 233,469 | 15 | % | ||||||
|
Gross margin percentage
|
18 | % | 17 | % | 1 | % | ||||||
The increase in revenue, cost of sales and gross margin was
primarily due to the inclusion of Universal’s results for
the entire year ended December 31, 2008 compared to the
prior year, which included Universal’s results only after
the merger date of August 20, 2007 through the end of the
period, partially offset by approximately $123.7 million
less in installation revenues in the year ended
December 31, 2008. Results for the year ended
December 31, 2007 included the recognition of a
$66 million installation project in the Eastern Hemisphere.
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Our results for the year ended December 31, 2007 also
included approximately $49.1 million of Universal’s
revenues related to three projects in the Eastern Hemisphere
accounted for under the completed contract method of accounting
that were near completion on the merger date and were completed
by December 31, 2007. Due to the adjustment to record
Universal’s inventory at fair value pursuant to the
allocation of the purchase price on the date of merger, the
value of the inventory related to these projects was increased
to their sales price, which resulted in a gross margin
percentage of 0% on these projects. For further information
regarding the purchase price allocation with the merger, see
Note 3 to the Financial Statements.
Costs and
expenses
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2008 | 2007 | (Decrease) | ||||||||||
|
Selling, general and administrative
|
$ | 352,899 | $ | 247,983 | 42 | % | ||||||
|
Merger and integration expenses
|
11,384 | 46,201 | (75 | )% | ||||||||
|
Depreciation and amortization
|
330,886 | 232,492 | 42 | % | ||||||||
|
Fleet impairment
|
24,109 | 61,945 | (61 | )% | ||||||||
|
Goodwill impairment
|
1,148,371 | — | n/a | |||||||||
|
Interest expense
|
129,784 | 130,303 | 0 | % | ||||||||
|
Early extinguishment of debt
|
— | 70,150 | (100 | )% | ||||||||
|
Equity in income of non-consolidated affiliates
|
(23,974 | ) | (12,498 | ) | 92 | % | ||||||
|
Other (income) expense, net
|
(3,118 | ) | (19,771 | ) | (84 | )% | ||||||
The increase in SG&A expenses was primarily due to the
inclusion of Universal’s results for the entire year ended
December 31, 2008 compared to the prior year, which
included Universal’s results only after the merger date of
August 20, 2007 through the end of the period. As a
percentage of revenue, SG&A for the years ended
December 31, 2008 and 2007 was 12% and 10%, respectively.
During the year ended December 31, 2008, merger and
integration expenses related to the merger between Hanover and
Universal were primarily comprised of professional fees,
amortization of retention bonus awards, change of control
payments and severance for employees. During the year ended
December 31, 2007, merger and integration expenses were
primarily comprised of amortization of retention bonus awards,
acceleration of vesting of restricted stock, stock options and
long-term cash incentives, change of control payments for
executives and severance for employees.
The increase in depreciation and amortization expense was
primarily due to the inclusion of Universal’s results for
the entire year ended December 31, 2008 compared to the
prior year, which included Universal’s results only after
the merger date of August 20, 2007 through the end of the
period, and property, plant and equipment additions.
Amortization expense of intangible assets from the Hanover and
Universal merger and other acquisitions was $38.6 million
and $15.1 million for the years ended December 31,
2008 and 2007, respectively.
We were involved in the Cawthorne Channel Project in Nigeria, in
which Global contracted with Shell to process natural gas from
some of Shell’s Nigerian oil and natural gas fields. The
area in Nigeria where the Cawthorne Channel Project is located
has experienced local civil unrest and violence and was not
operational for much of the project’s life. As a result of
operational difficulties and taking into consideration the
project’s historical performance and declines in commodity
prices, we undertook an assessment of our estimated future cash
flows from the Cawthorne Channel Project. Based on the analysis
we completed, we determined we would not recover all of our
remaining investment in the Cawthorne Channel Project.
Accordingly, we recorded an impairment charge of
$21.6 million in our 2008 results to reduce the carrying
amount of our assets associated with the Cawthorne Channel
Project to their estimated fair value which is reflected in
Fleet impairment expense in our consolidated statements of
operations.
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Table of Contents
During 2008, management identified certain fleet units that will
not be used in our contract operations business in the future
and recorded a $1.5 million impairment. During 2008, we
also recorded a $1.0 million impairment related to the loss
sustained on offshore units that were on platforms which
capsized during Hurricane Ike. In 2007, we recorded an
impairment of fleet equipment of $61.9 million. Following
completion of the merger between Hanover and Universal, our
management reviewed the compression fleet assets used in our
business that existed at the merger date. Management reviewed
our fleet for units that were not of the type, configuration,
make or model that management wanted to continue to offer due to
the cost to refurbish the equipment, the incremental costs of
maintaining more types of equipment and the increased financial
flexibility of the new company to build new units in the
configuration currently in demand by our customers. Prior to the
merger, we had planned to rebuild or reconfigure these units
over time to make them into the configurations currently in
demand by customers. We performed a cash flow analysis of the
expected proceeds from the disposition to determine the fair
value for the fleet assets we decided to dispose of. The net
book value of the fleet assets to be disposed of, previously
owned by Hanover, exceeded the fair value by $61.9 million,
which was recorded as an impairment of our long-lived assets in
2007. These impairments are recorded in Fleet impairment expense
in the consolidated statements of operations.
We recorded a goodwill impairment charge of
$1,148.4 million in 2008. In 2008, there were severe
disruptions in the credit and capital markets and reductions in
global economic activity which had significant adverse impacts
on stock markets and
oil-and-gas-related
commodity prices, both of which we believe contributed to a
significant decline in our stock price and corresponding market
capitalization. We determined that the deepening recession and
financial market crisis, along with the continuing decline in
the market value of our common stock resulted in an impairment
of all the goodwill in our North America contract operations
reporting unit. See Note 9 for further discussion of this
goodwill impairment charge.
Interest expense in the year ended December 31, 2008 was
impacted by a higher average debt balance due to the addition of
Universal’s debt after the merger compared to our average
debt balance before the merger and was impacted by a reduction
in our weighted average effective interest rate. Interest
expense for the year ended December 31, 2007 included a
$7.0 million charge from the termination of two fair value
hedges. Our weighted average effective interest rate, including
the impact of interest rate swaps, decreased to 5.2% for the
year ended December 31, 2008 from 6.6% (excluding the
$7.0 million charge for termination of interest rate swaps)
for the year ended December 31, 2007. The decrease in our
effective interest rate was primarily due to the refinancing
entered into after the merger.
The early extinguishment of debt in the year ended
December 31, 2007 relates to the call premium and tender
fees paid to retire various Hanover notes as part of the debt
refinancing following the merger and a charge of
$16.4 million related to the write-off of deferred
financing costs in conjunction with that refinancing, which was
completed during the third quarter of 2007. For further
information regarding the debt refinancing, see Note 11 to
the Financial Statements.
The increase in equity in income of non-consolidated affiliates
was primarily due to higher equity income in our Venezuelan
joint venture, PIGAP II, in the year ended December 31,
2008 and a $6.7 million impairment charge recorded in the
third quarter of 2007 on our investment in the SIMCO Consortium
and Harwat due to the decline in the value of our investment
that was determined to be other than temporary. This decline in
value of our investment was caused primarily by increased costs
to operate the business that were not expected to improve in the
near term. We had a 30.0% ownership interest in the PIGAP II
joint venture that operates gas compression plants during the
year ended December 31, 2008. During the year ended
December 31, 2008, we recorded equity income of
$20.2 million related to PIGAP II compared to
$16.0 million in equity income for the year ended
December 31, 2007. The increase in equity in income from
our investment in PIGAP II was primarily due to an increase in
the volume of gas processed from an expansion of the scope of
the project during the year ended December 31, 2008.
The change in other (income) expense, net, was primarily due to
foreign currency translation losses of $10.7 million for
the year ended December 31, 2008 compared to a gain of
$7.8 million for the year ended December 31, 2007. The
foreign currency translation losses are primarily related to the
remeasurement of our international subsidiaries’ net assets
exposed to changes in foreign currency rates and a
$3.9 million loss on a
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foreign currency hedge in the year ended December 31, 2008.
The increase in the foreign currency translation losses for year
ended December 31, 2008 was primarily caused by the
U.S. dollar strengthening compared to the Canadian dollar,
Brazilian Real and Euro in the year ended December 31,
2008. The change in other (income) expense, net was also
impacted by a $3.0 million decrease in gains on sales of
used equipment in the year ended December 31, 2008.
Income
Taxes
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2008 | 2007 | (Decrease) | ||||||||||
|
Provision for income taxes
|
$ | 37,219 | $ | 1,558 | 2,289 | % | ||||||
|
Effective tax rate
|
(3.9 | )% | (66.6 | )% | 62.7 | % | ||||||
The increase in our provision for income taxes was primarily due
to an increase in income before income taxes, excluding a
goodwill impairment charge of $1,148.4 million, partially
offset by the tax deductible portion of the goodwill impairment
of $143.1 million. The change in our provision for income
taxes was further impacted by (i) a $10.8 million
increase primarily related to benefits recorded in 2007 from the
reversal of valuation allowances recorded against net operating
losses of certain foreign subsidiaries, (ii) a
$3.9 million charge for foreign tax audit assessments
received in 2008, (iii) a $3.5 million charge for the
tax effect of enacted state and foreign tax law changes in 2008
as compared to 2007 and (iv) a $5.3 million benefit
from increased foreign tax credits claimed in 2008 as compared
to 2007.
Noncontrolling
Interest
As of December 31, 2008, noncontrolling interest is
primarily comprised of the portion of the Partnership’s
earnings that is applicable to the interest in the Partnership
not owned by us. We acquired our ownership of the Partnership
through the merger with Universal (see Note 3 to the
Financial Statements). Noncontrolling interest was higher in the
year ended December 31, 2008 primarily due to the inclusion
of the Partnership’s results for the entire period compared
to the prior year, which included the Partnership’s results
only after the merger date of August 20, 2007 through the
end of the period.
Discontinued
Operations
(Dollars in thousands)
(Dollars in thousands)
| Years Ended December 31, |
Increase
|
|||||||||||
| 2008 | 2007 | (Decrease) | ||||||||||
|
Income from discontinued operations, net of tax
|
$ | 46,752 | $ | 44,773 | 4 | % | ||||||
The income from discontinued operations, net of tax for the
years ended December 31, 2008 and 2007 of
$46.8 million and the $44.8 million, respectively,
relates to operations in Venezuela before substantially all of
our assets and operations in Venezuela were expropriated in June
2009. See Note 2 to the Financial Statements for further
information regarding the expropriation.
Liquidity
and Capital Resources
Our unrestricted cash balance was $83.7 million at
December 31, 2009, compared to $123.9 million at
December 31, 2008. Working capital from continuing
operations decreased to $545.9 million at December 31,
2009 from $676.4 million at December 31, 2008.
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Table of Contents
Our cash flows from operating, investing and financing
activities, as reflected in the consolidated statements of cash
flows, are summarized in the table below (in thousands):
| Years Ended December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Net cash provided by (used in) continuing operations:
|
||||||||
|
Operating activities
|
$ | 476,808 | $ | 442,521 | ||||
|
Investing activities
|
(300,290 | ) | (541,182 | ) | ||||
|
Financing activities
|
(224,004 | ) | 86,398 | |||||
|
Effect of exchange rate changes on cash and cash equivalents
|
7,325 | (10,447 | ) | |||||
|
Discontinued operations
|
— | 1,815 | ||||||
|
Net change in cash and cash equivalents
|
$ | (40,161 | ) | $ | (20,895 | ) | ||
Operating Activities.
The increase in cash
provided by operating activities for the year ended
December 31, 2009 was primarily due to an increase in cash
provided by a reduction in working capital, partially offset by
a reduction in gross margin from our North America contract
operations and fabrication segments as compared to the year
ended December 31, 2008.
Investing Activities.
The decrease in cash
used in investing activities was primarily attributable to
reduced capital expenditures during the year ended
December 31, 2009 and approximately $133.6 million
cash used for acquisitions in the year ended December 31,
2008.
Financing Activities.
The increase in cash
used in financing activities during the year ended
December 31, 2009 compared to the year ended
December 31, 2008 was primarily attributable to an increase
in net debt repayments and the use of cash for the net cost of
the call options purchased and the warrants sold in connection
with the offering of our 4.25% convertible senior notes due June
2014 (the “4.25% Notes”) in the year ended
December 31, 2009 compared to the year ended
December 31, 2008. This increase was partially offset by
reduced repurchases of our common stock during the year ended
year ended December 31, 2009.
Capital Expenditures.
We generally invest
funds necessary to fabricate fleet additions when our idle
equipment cannot be reconfigured to economically fulfill a
project’s requirements and the new equipment expenditure is
expected to generate economic returns over its expected useful
life that exceed our targeted return on capital. We currently
plan to spend approximately $250 million to
$300 million in net capital expenditures during 2010,
including (1) contract operations equipment additions and
(2) approximately $100 million to $110 million on
equipment maintenance capital related to our contract operations
business. Net capital expenditures are net of fleet sales.
Long-Term Debt.
As of December 31, 2009,
we had approximately $2.3 billion in outstanding debt
obligations, consisting of $570.0 million outstanding under
our 2007 ABS Facility (as defined below), $780.0 million
outstanding under our term loan, $68.9 million outstanding
under our revolving credit facility, $143.8 million
outstanding under our 4.75% convertible notes due 2014,
$265.5 million outstanding under our 4.25% Notes,
$285.0 million outstanding under the Partnership’s
revolving credit facility, $117.5 million outstanding under
the Partnership’s term loan and $30.0 million
outstanding under the Partnership’s 2009 ABS Facility.
On August 20, 2007, we entered into a senior secured credit
agreement (the “Credit Agreement”) with various
financial institutions. The Credit Agreement consists of
(a) a five-year revolving credit facility in the aggregate
amount of $850 million, which includes a variable
allocation for a Canadian tranche and the ability to issue
letters of credit under the facility and (b) a six-year
term loan, in the aggregate amount of $800 million with
principal payments due on multiple dates through June 2013
(collectively, the “Credit Facility”). Subject to
certain conditions as of December 31, 2009, at our request
and with the approval of the lenders, the aggregate commitments
under the Credit Facility may be increased by an additional
$400 million less certain adjustments.
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As of December 31, 2009, we had $68.9 million in
outstanding borrowings and $303.5 million in letters of
credit outstanding under our revolving credit facility and
$780.0 million in outstanding borrowings under our term
loan. Additional borrowings of up to approximately
$477.6 million were available under the revolving credit
facility.
Borrowings under the Credit Agreement bear interest, if they are
in U.S. dollars, at a base rate or LIBOR at our option plus
an applicable margin, as defined in the agreement. The
applicable margin varies depending on our debt ratings. At
December 31, 2009, all amounts outstanding were LIBOR loans
and the applicable margin was 0.825%. The weighted average
interest rate at December 31, 2009 on the outstanding
balance, excluding the effect of interest rate swaps, was 1.1%.
The Credit Agreement contains various covenants with which we
must comply, including, but not limited to, limitations on
incurrence of indebtedness, investments, liens on assets,
transactions with affiliates, mergers, consolidations, sales of
assets and other provisions customary in similar types of
agreements. We must also maintain, on a consolidated basis,
required leverage and interest coverage ratios. Additionally,
the Credit Agreement contains customary conditions,
representations and warranties, events of default and
indemnification provisions. Our indebtedness under the Credit
Facility is collateralized by liens on substantially all of our
personal property in the U.S. The assets of the Partnership
and our wholly-owned subsidiary, Exterran ABS 2007 LLC (along
with its subsidiary, “Exterran ABS”), are not
collateral under the Credit Agreement. Exterran Canada, Limited
Partnership’s indebtedness under the Credit Facility is
collateralized by liens on substantially all of its personal
property in Canada. We have executed a U.S. Pledge
Agreement pursuant to which we and our Significant Subsidiaries
(as defined in the Credit Agreement) are required to pledge our
equity and the equity of certain subsidiaries. The Partnership
and Exterran ABS are not pledged under this agreement and do not
guarantee debt under the Credit Facility.
In August 2007, Exterran ABS entered into a $1.0 billion
asset-backed securitization facility (the “2007 ABS
Facility”), which was reduced to an $800 million
facility in October 2009 concurrent with the closing of the
Partnership’s new $150 million asset-backed
securitization facility. The amount outstanding at any time is
limited to the lower of (i) 80% of the value of the natural
gas compression equipment owned by Exterran ABS and its
subsidiaries, (ii) 4.5 times free cash flow or
(iii) the amount calculated under an interest coverage test
(as these limits are defined in the agreement). Based on these
tests, the limit on the amount outstanding can be increased or
decreased in future periods. As of December 31, 2009, we
had $570.0 million in outstanding borrowings under the 2007
ABS Facility and $230.0 million of unfunded commitments. As
of December 31, 2009, due to certain covenant limitations
under the facility, only approximately $58.2 million of the
$230.0 million in unfunded commitments could have been
available for additional borrowings, if such facility were fully
funded with all eligible contract compression assets available
at that time. If our operations within Exterran ABS experience
additional reductions in cash flows, the amount available for
additional borrowings could be further reduced. As a result of
our expectations for further reductions in our North America
contract operations business, we currently expect the limit on
the amount outstanding to be further reduced in 2010. If the
outstanding borrowings exceed the amount allowed based on the
limitations, we can utilize either certain cash flows from
Exterran ABS’s operations or borrowings under our revolving
credit facility, or a combination of both, to reduce the amount
of borrowings outstanding to the amount allowed pursuant to the
limitations. In February 2010, we made a $40.0 million
payment on the 2007 ABS Facility using cash flows from
operations.
Interest and fees payable to the noteholders accrue on these
notes at a variable rate consisting of one month LIBOR plus an
applicable margin of 0.825%. The weighted average interest rate
at December 31, 2009 on borrowings under the 2007 ABS
Facility, excluding the effect of interest rate swaps, was 1.1%.
The 2007 ABS Facility is revolving in nature and is payable in
July 2012.
Repayment of the 2007 ABS Facility notes has been secured by a
pledge of all of the assets of Exterran ABS, consisting
primarily of specified compression services contracts and a
fleet of natural gas compressors. Under the 2007 ABS Facility,
we had $12.9 million of restricted cash as of
December 31, 2009.
In June 2009, we issued under our shelf registration statement
$355.0 million aggregate principal amount of
4.25% Notes, including $30.0 million issued under the
underwriter’s overallotment option. The 4.25% Notes
are convertible upon the occurrence of certain conditions into
shares of our common stock at an initial
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conversion rate of 43.1951 shares of our common stock per
$1,000 principal amount of the convertible notes, equivalent to
an initial conversion price of approximately $23.15 per share of
common stock. The conversion rate will be subject to adjustment
following certain dilutive events and certain corporate
transactions. We may not redeem the notes prior to the maturity
date of the notes.
The 4.25% Notes are our senior unsecured obligations and
rank senior in right of payment to our existing and future
indebtedness that is expressly subordinated in right of payment
to the 4.25% Notes; equal in right of payment to our
existing and future unsecured indebtedness that is not so
subordinated; junior in right of payment to any of our secured
indebtedness to the extent of the value of the assets securing
such indebtedness; and structurally junior to all existing and
future indebtedness and liabilities incurred by our
subsidiaries. The 4.25% Notes are not guaranteed by any of
our subsidiaries.
In connection with the offering of the 4.25% Notes, we
purchased call options on our stock at approximately $23.15 per
share of common stock and sold warrants on our stock at
approximately $32.67 per share of common stock. These
transactions economically adjust the effective conversion price
to $32.67 for $325.0 million of the 4.25% Notes and
therefore are expected to reduce the potential dilution to our
common stock upon any such conversion. We used
$36.3 million of the net proceeds from this debt offering
and the full $53.1 million of the proceeds from the
warrants sold to pay the cost of the purchased call options, and
the remaining net proceeds from this debt offering to repay
approximately $173.8 million of indebtedness under our
revolving credit facility and approximately $135.0 million
of indebtedness outstanding under the 2007 ABS Facility.
The Partnership, as guarantor, and EXLP Operating LLC, a
wholly-owned subsidiary of the Partnership (together with the
Partnership, the “Partnership Borrowers”), are parties
to a senior secured credit agreement (the “Partnership
Credit Agreement”) that provides for a five-year,
$315 million revolving credit facility that matures in
October 2011. As of December 31, 2009, there was
$285.0 million in outstanding borrowings under the
revolving credit facility and $30.0 million was available
for additional borrowings.
The Partnership’s revolving credit facility bears interest
at a base rate or LIBOR, at the Partnership’s option, plus
an applicable margin, as defined in the agreement. At
December 31, 2009 all amounts outstanding were LIBOR loans
and the applicable margin was 1.75%. The weighted average
interest rate on the outstanding balance of the
Partnership’s revolving credit facility, at
December 31, 2009, excluding the effect of interest rate
swaps, was 2.1%.
In May 2008, the Partnership Borrowers entered into an amendment
to the Partnership Credit Agreement that increased the aggregate
commitments under that facility to provide for a
$117.5 million term loan facility. The $117.5 million
term loan was funded during July 2008 and $58.3 million was
drawn on the Partnership’s revolving credit facility, which
together were used to repay the debt assumed by the Partnership
concurrent with the closing of the acquisition by the
Partnership from us of certain contract compression assets and
to pay other costs incurred. The $117.5 million term loan
is
non-amortizing
but must be repaid with the net cash proceeds from any equity
offerings of the Partnership until paid in full.
The term loan bears interest at a base rate or LIBOR, at the
Partnership’s option, plus an applicable margin. Borrowings
under the term loan are subject to the same credit agreement and
covenants as the Partnership’s revolving credit facility,
except for an additional covenant requiring mandatory prepayment
of the term loan from net cash proceeds of any future equity
offerings of the Partnership, on a dollar-for-dollar basis. At
December 31, 2009, all amounts outstanding were LIBOR loans
and the applicable margin was 2.25%. The weighted average
interest rate on the outstanding balance of the
Partnership’s term loan at December 31, 2009,
excluding the effect of interest rate swaps, was 2.5%.
Borrowings under the Partnership Credit Agreement are secured by
substantially all of the personal property assets of the
Partnership Borrowers, other than the assets of EXLP ABS 2009
LLC and its subsidiaries, which secure the Partnership’s
asset-backed securitization facility discussed below. In
addition, all of the membership interests of the
Partnership’s restricted subsidiaries have been pledged to
secure the obligations under the Partnership Credit Agreement.
Subject to certain conditions, at the Partnership’s
request, and with the approval of the lenders, the aggregate
commitments under the Partnership’s senior secured credit
facility may be
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increased by an additional $17.5 million. This amount will
be increased on a dollar-for-dollar basis with each payment
under the term loan facility.
In October 2009, the Partnership entered into a new
$150 million asset-backed securitization facility (the
“2009 ABS Facility”). The 2009 ABS Facility notes are
revolving in nature and are payable in July 2013. Interest and
fees payable to the noteholders accrue on these notes at a
variable rate consisting of an applicable margin of 3.5% plus,
at the Partnership’s option, either LIBOR or a base rate.
The weighted average interest rate on the outstanding balance of
the 2009 ABS Facility at December 31, 2009, excluding the
effect of interest rate swaps, was 3.8%. Repayment of the 2009
ABS Facility notes has been secured by a pledge of all of the
assets of EXLP ABS 2009 LLC and its subsidiaries, consisting
primarily of specified compression services contracts and a
fleet of natural gas compressor units. The amount outstanding at
any time is limited to the lower of (i) 75% of the value of
the natural gas compression equipment owned by EXLP ABS 2009 LLC
and its subsidiaries (as defined in the agreement),
(ii) 4.0 times free cash flow or (iii) the amount
calculated under an interest coverage test. Additionally, the
Partnership Credit Agreement limits the amount we can borrow
under the 2009 ABS Facility to two times the Partnership’s
EBITDA (as defined in the Partnership Credit Agreement). As of
December 31, 2009, there was $30.0 million in
outstanding borrowings under the 2009 ABS Facility and
$120.0 million of unfunded commitments. Under the 2009 ABS
Facility, the Partnership had $0.4 million of restricted
cash as of December 31, 2009.
Our bank credit facilities, asset-backed securitization
facilities and the agreements governing certain of our other
indebtedness include various covenants with which we must
comply, including, but not limited to, limitations on incurrence
of indebtedness, investments, liens on assets, transactions with
affiliates, mergers, consolidations, sales of assets and other
provisions customary in similar types of agreements. For
example, under our Credit Agreement we must maintain various
consolidated financial ratios including a ratio of EBITDA (as
defined in the Credit Agreement) to Total Interest Expense (as
defined in the Credit Agreement) of not less than 2.25 to 1.0, a
ratio of consolidated Total Debt (as defined in the Credit
Agreement) to EBITDA of not greater than 5.0 to 1.0 and a ratio
of Senior Secured Debt (as defined in the Credit Agreement) to
EBITDA of not greater than 4.0 to 1.0. As of December 31,
2009, we maintained a 6.1 to 1.0 EBITDA to Total Interest
Expense ratio, a 3.5 to 1.0 consolidated Total Debt to EBITDA
ratio and a 2.8 to 1.0 Senior Secured Debt to EBITDA ratio. If
we fail to remain in compliance with our financial covenants we
would be in default under our credit agreements. In addition, if
we experience a material adverse effect on our assets,
liabilities, financial condition, business, operations or
prospects that, taken as a whole, impacted our ability to
perform our obligations under our credit agreements, this could
lead to a default under our credit agreements. A default under
one or more of our debt agreements, including a default by the
Partnership under its credit facilities, would trigger
cross-default provisions under certain of our debt agreements,
which would accelerate our obligation to repay our indebtedness
under those agreements. As of December 31, 2009, we were in
compliance with all financial covenants under our credit
agreements. If our operations in Venezuela had been excluded
from our calculation of EBITDA as of December 31, 2009, we
would have had a 5.9 to 1.0 EBITDA to Total Interest Expense
ratio, a 3.7 to 1.0 consolidated Total Debt to EBITDA ratio and
a 2.9 to 1.0 Senior Secured Debt to EBITDA ratio.
The Partnership Credit Agreement contains various covenants with
which the Partnership must comply, including restrictions on the
use of proceeds from borrowings and limitations on its ability
to: incur additional debt or sell assets, make certain
investments and acquisitions, grant liens and pay dividends and
distributions. The Partnership must maintain various
consolidated financial ratios, including a ratio of EBITDA (as
defined in the Partnership Credit Agreement) to Total Interest
Expense (as defined in the Partnership Credit Agreement) of not
less than 2.5 to 1.0, and a ratio of Total Debt (as defined in
the Partnership Credit Agreement) to EBITDA of not greater than
5.0 to 1.0. The Partnership Credit Agreement allows for the
Partnership’s Total Debt to EBITDA ratio to be increased
from 5.0 to 1.0 to 5.5 to 1.0 during a quarter when an
acquisition closes meeting certain thresholds and for the
following two quarters after the acquisition closes. Therefore,
because the November 2009 Contract Operations Acquisition closed
in the fourth quarter of 2009 and met the applicable thresholds,
the maximum allowed ratio of Total Debt to EBITDA was increased
from 5.0 to 1.0 to 5.5 to 1.0 for the period from
December 31, 2009 through June 30, 2010. As of
December 31, 2009, the Partnership maintained a 5.2 to 1.0
EBITDA to Total Interest Expense ratio and a 4.0 to 1.0 Total
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Debt to EBITDA ratio. If the Partnership continues to experience
a deterioration in the demand for its services and is unable to
consummate further acquisitions from us, amend its senior
secured credit facility or restructure its debt, it estimates
that it could be in violation of the maximum Total Debt to
EBITDA covenant ratio contained in its senior secured credit
facility in 2010. A violation of the Partnership’s Total
Debt to EBITDA covenant would be an event of default under the
Partnership Credit Agreement which would trigger cross-default
provisions under certain of our debt agreements. As of
December 31, 2009, the Partnership was in compliance with
all financial covenants under the Partnership Credit Agreement.
We have entered into interest rate swap agreements related to a
portion of our variable rate debt. See Part II,
Item 7A (“Quantitative and Qualitative Disclosures
About Market Risk”) of this report for further discussion
of our interest rate swap agreements.
The interest rate we pay under our Credit Agreement can be
affected by changes in our credit rating. As of
December 31, 2009, our credit ratings as assigned by
Moody’s and Standard & Poor’s were:
|
Standard
|
||||
| Moody’s | & Poor’s | |||
|
Outlook
|
Stable | Stable | ||
|
Corporate Family Rating
|
Ba2 | BB | ||
|
Exterran Senior Secured Credit Facility
|
Ba2 | BB+ | ||
|
4.75% convertible senior notes due January 2014
|
— | BB | ||
|
4.25% convertible senior notes due June 2014
|
— | BB |
Historically, we have financed capital expenditures with a
combination of net cash provided by operating and financing
activities. As a result of the continuing challenges in the
global economy and financial markets and the decline in our
stock price, our ability to access the capital markets may be
restricted at a time when we would like, or need, to do so,
which could have an adverse impact on our ability to maintain
our fleet and to grow. If any of our lenders become unable to
perform their obligations under our credit facilities, our
borrowing capacity under these facilities could be reduced.
Inability to borrow additional amounts under those facilities
could limit our ability to fund our future growth and
operations. Additionally, PDVSA has assumed control over
substantially all of our assets and operations in Venezuela, as
discussed further in Note 2 to the Financial Statements,
which has impacted our cash provided by operations. Based on
current market conditions, we expect that net cash provided by
operating activities will be sufficient to finance our operating
expenditures, capital expenditures and scheduled interest and
debt repayments through December 31, 2010; however, to the
extent it is not, we may borrow additional funds under our
credit facilities or we may seek additional debt or equity
financing.
Stock Repurchase Program.
On August 20,
2007, our board of directors authorized the repurchase of up to
$200 million of our common stock through August 19,
2009. In December 2008, our board of directors increased the
share repurchase program, from $200 million to
$300 million, and extended the expiration date of the
authorization, from August 19, 2009 to December 15,
2010. Since the program was initiated, we have repurchased
5,416,221 shares of our common stock at an aggregate cost
of approximately $199.9 million. We did not repurchase any
shares under this program during the year ended
December 31, 2009.
Dividends.
We have not paid any cash dividends
on our common stock since our formation, and we do not
anticipate paying such dividends in the foreseeable future. Our
board of directors anticipates that all cash flows generated
from operations in the foreseeable future will be retained and
used to repay our debt, repurchase our stock or develop and
expand our business, except for a portion of the cash flow
generated from operations of the Partnership which will be used
to pay a distribution on its units not owned by us. Any future
determinations to pay cash dividends on our common stock will be
at the discretion of our board of directors and will depend on
our results of operations and financial condition, credit and
loan agreements in effect at that time and other factors deemed
relevant by our board of directors.
Partnership Distributions to Unitholders.
The
Partnership’s partnership agreement requires it to
distribute all of its “available cash” quarterly.
Under the partnership agreement, available cash is defined
generally to mean, for each fiscal quarter, (1) cash on
hand at the Partnership at the end of the quarter in excess of
the amount of
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reserves its general partner determines is necessary or
appropriate to provide for the conduct of its business, to
comply with applicable law, any of its debt instruments or other
agreements or to provide for future distributions to its
unitholders for any one or more of the upcoming four quarters,
plus, (2) if the Partnership’s general partner so
determines, all or a portion of the Partnership’s cash on
hand on the date of determination of available cash for the
quarter.
Under the terms of the partnership agreement, there is no
guarantee that unitholders will receive quarterly distributions
from the Partnership. The Partnership’s distribution
policy, which may be changed at any time, is subject to certain
restrictions, including (1) restrictions contained in the
Partnership’s credit facilities (2) the
Partnership’s general partner’s establishment of
reserves to fund future operations or cash distributions to the
Partnership’s unitholders, (3) restrictions contained
in the Delaware Revised Uniform Limited Partnership Act and
(4) the Partnership’s lack of sufficient cash to pay
distributions.
Through our ownership of common and subordinated units and all
of the equity interests in the general partner of the
Partnership, we expect to receive cash distributions from the
Partnership. Our rights to receive distributions of cash from
the Partnership as holder of subordinated units are subordinated
to the rights of the common unitholders to receive such
distributions.
On February 12, 2010, the Partnership distributed $0.4625
per limited partner unit, or approximately $11.6 million,
including distributions to the Partnership’s general
partner on its incentive distribution rights. The distribution
covers the period from October 1, 2009 through
December 31, 2009. The record date for this distribution
was February 9, 2010.
Contractual obligations.
The following
summarizes our contractual obligations at December 31, 2009
and the effect such obligations are expected to have on our
liquidity and cash flow in future periods (in thousands):
| Total | 2010 | 2011-2012 | 2013-2014 | Thereafter | ||||||||||||||||
|
Long-term Debt(1):
|
||||||||||||||||||||
|
Revolving credit facility due August 2012
|
$ | 68,929 | $ | — | $ | 68,929 | $ | — | $ | — | ||||||||||
|
Term loan
|
780,000 | 40,000 | (2) | 420,000 | 320,000 | — | ||||||||||||||
|
2007 ABS Facility notes due July 2012
|
570,000 | — | 570,000 | — | — | |||||||||||||||
|
Partnership’s revolving credit facility due October 2011
|
285,000 | — | 285,000 | — | — | |||||||||||||||
|
Partnership’s term loan facility due October 2011
|
117,500 | — | 117,500 | — | — | |||||||||||||||
|
Partnership’s 2009 ABS Facility notes due July 2013
|
30,000 | — | — | 30,000 | — | |||||||||||||||
|
4.25% convertible senior notes due June 2014(3)
|
355,000 | — | — | 355,000 | — | |||||||||||||||
|
4.75% convertible senior notes due January 2014
|
143,750 | — | — | 143,750 | — | |||||||||||||||
|
Other
|
288 | 179 | (2) | 109 | — | — | ||||||||||||||
|
Total long-term debt
|
2,350,467 | 40,179 | 1,461,538 | 848,750 | — | |||||||||||||||
|
Interest on long-term debt(4)
|
438,764 | 130,460 | 223,907 | 84,397 | — | |||||||||||||||
|
Purchase commitments
|
219,712 | 218,979 | 333 | 200 | 200 | |||||||||||||||
|
Facilities and other operating leases
|
42,532 | 8,629 | 11,052 | 7,623 | 15,228 | |||||||||||||||
|
Total contractual obligations
|
$ | 3,051,475 | $ | 398,247 | $ | 1,696,830 | $ | 940,970 | $ | 15,428 | ||||||||||
| (1) | For more information on our long-term debt, see Note 11 to the Financial Statements. | |
| (2) | These maturities are classified as long-term because we have the intent and ability to refinance these maturities with available credit. | |
| (3) | These amounts include the full face value of the 4.25% Notes and is not reduced by the unamortized discount of $89.5 million as of December 31, 2009. | |
| (4) | Interest amounts calculated using interest rates in effect as of December 31, 2009, including the effect of interest rate swaps. |
At December 31, 2009, $19.8 million of unrecognized
tax benefits (including discontinued operations) have been
recorded as liabilities in accordance with the Financial
Accounting Standards Board’s Accounting Standards
Codification (“ASC”) 740, “Income Taxes”
(“ASC 740”), related to uncertain tax positions and we
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are uncertain as to if or when such amounts may be settled.
Related to these unrecognized tax benefits, we have also
recorded a liability for potential penalties and interest of
$11.9 million (including discontinued operations).
Off-Balance
Sheet Arrangements
We have no material off-balance sheet arrangements.
Effects
of Inflation
Our revenues and results of operations have not been materially
impacted by inflation in the past three fiscal years.
Critical
Accounting Estimates
This discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the U.S. The
preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing
basis, we evaluate our estimates and accounting policies,
including those related to bad debts, inventories, fixed assets,
investments, intangible assets, income taxes, revenue
recognition and contingencies and litigation. We base our
estimates on historical experience and on other assumptions that
we believe are reasonable under the circumstances. The results
of this process form the basis of our judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions, and
these differences can be material to our financial condition,
results of operations and liquidity.
Allowances
and Reserves
We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make
required payments. The determination of the collectibility of
amounts due from our customers requires us to use estimates and
make judgments regarding future events and trends, including
monitoring our customers’ payment history and current
credit worthiness to determine that collectibility is reasonably
assured, as well as consideration of the overall business
climate in which our customers operate. Inherently, these
uncertainties require us to make judgments and estimates
regarding our customers’ ability to pay amounts due us in
order to determine the appropriate amount of valuation
allowances required for doubtful accounts. We review the
adequacy of our allowance for doubtful accounts quarterly. We
determine the allowance needed based on historical write-off
experience and by evaluating significant balances aged greater
than 90 days individually for collectibility. Account
balances are charged off against the allowance after all means
of collection have been exhausted and the potential for recovery
is considered remote. During 2009, 2008 and 2007, we recorded
bad debt expense of approximately $5.9 million,
$4.0 million and $2.2 million, respectively. A five
percent change in the allowance for doubtful accounts would have
had an impact on income before income taxes of approximately
$0.8 million in 2009.
Inventory is a significant component of current assets and is
stated at the lower of cost or market. This requires us to
record provisions and maintain reserves for excess, slow moving
and obsolete inventory. To determine these reserve amounts, we
regularly review inventory quantities on hand and compare them
to estimates of future product demand, market conditions and
production requirements. These estimates and forecasts
inherently include uncertainties and require us to make
judgments regarding potential outcomes. During 2009, 2008 and
2007, we wrote-down inventory of approximately
$5.3 million, $2.1 million and $0.7 million,
respectively. Significant or unanticipated changes to our
estimates and forecasts could impact the amount and timing of
any additional provisions for excess or obsolete inventory that
may be required. A five percent change in this inventory reserve
balance would have had an impact on income before income taxes
of approximately $0.9 million in 2009.
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Depreciation
Property, plant and equipment are carried at cost. Depreciation
for financial reporting purposes is computed on the
straight-line basis using estimated useful lives and salvage
values. The assumptions and judgments we use in determining the
estimated useful lives and salvage values of our property, plant
and equipment reflect both historical experience and
expectations regarding future use of our assets. The use of
different estimates, assumptions and judgments in the
establishment of property, plant and equipment accounting
policies, especially those involving their useful lives, would
likely result in significantly different net book values of our
assets and results of operations.
Long-Lived
Assets, Investments and Goodwill
We review for the impairment of long-lived assets, including
property, plant and equipment, identifiable intangibles that are
being amortized, whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The determination that the carrying amount of an
asset may not be recoverable requires us to make judgments
regarding long-term forecasts of future revenues and costs
related to the assets subject to review. These forecasts are
uncertain as they require significant assumptions about future
market conditions. Significant and unanticipated changes to
these assumptions could require a provision for impairment in a
future period. Given the nature of these evaluations and their
application to specific assets and specific times, it is not
possible to reasonably quantify the impact of changes in these
assumptions. An impairment loss exists when estimated
undiscounted cash flows expected to result from the use of the
asset and its eventual disposition are less than its carrying
amount. When necessary, an impairment loss is recognized and
represents the excess of the asset’s carrying value as
compared to its estimated fair value and is charged to the
period in which the impairment occurred.
In addition, we perform an annual goodwill impairment test in
the fourth quarter of each year or whenever events indicate
impairment may have occurred, to determine if the estimated
recoverable value of each of our reporting units exceeds the net
carrying value of the reporting unit, including the applicable
goodwill. We determine the fair value of our reporting units
using a combination of the expected present value of future cash
flows and a market approach. Each approach is weighted 50% in
determining our calculated fair value. The present value of
future cash flows is estimated using our most recent forecast
and the weighted average cost of capital. The market approach
uses a market multiple on the reporting units’ earnings
before interest, tax, depreciation and amortization. Significant
estimates for each reporting unit included in our impairment
analysis are our cash flow forecasts, our estimate of the
market’s weighted average cost of capital, projected income
tax rates and market multiples. Changes in these estimates could
affect the estimated fair value of our reporting units and
result in a goodwill impairment charge in a future period. See
Note 9 to the Financial Statements for a discussion of
goodwill impairment recorded on our North America and
International Contract operations businesses in the years ended
December 31, 2009 and 2008. There were no impairments in
2007 related to our goodwill. The fair value of our reporting
units that had goodwill as of December 31, 2009 exceeded
their book value by a significant margin.
We have held investments in companies with operations in areas
that relate to our business. We record an investment impairment
charge when we believe an investment has experienced a decline
in value that is other than temporary. See Note 8 to the
Financial Statements for a discussion of the impairment of our
investments in non-consolidated affiliates. As of
December 31, 2009 we had no investments in non-consolidated
affiliates.
Income
Taxes
The liability method is used for determining our income taxes,
under which current and deferred tax liabilities and assets are
recorded in accordance with enacted tax laws and rates. Under
this method, the amounts of deferred tax liabilities and assets
at the end of each period are determined using the tax rate
expected to be in effect when taxes are actually paid or
recovered.
Valuation allowances are established to reduce deferred tax
assets when it is more likely than not that some portion or all
of the deferred tax assets will not be realized. In determining
the need for valuation allowances, we have considered and made
judgments and estimates regarding future taxable income and
ongoing prudent
57
Table of Contents
and feasible tax planning strategies. These estimates and
judgments include some degree of uncertainty and changes in
these estimates and assumptions could require us to adjust the
valuation allowances for our deferred tax assets. The ultimate
realization of the deferred tax assets depends on the generation
of sufficient taxable income of the appropriate character in the
applicable taxing jurisdictions.
We operate in over 30 countries and, as a result, are subject to
the jurisdiction of numerous domestic and foreign tax
authorities. Our operations in these different jurisdictions are
taxed on various bases: actual income before taxes, deemed
profits (which are generally determined using a percentage of
revenues rather than profits) and withholding taxes based on
revenue. Determination of taxable income in any jurisdiction
requires the interpretation of the related tax laws and
regulations and the use of estimates and assumptions regarding
significant future events such as the amount, timing and
character of deductions, permissible revenue recognition methods
under the tax law and the sources and character of income and
tax credits. Changes in tax laws, regulations, agreements and
treaties, foreign currency exchange restrictions or our level of
operations or profitability in each taxing jurisdiction could
have an impact on the amount of income taxes that we provide
during any given year.
Revenue
Recognition — Percentage-of-Completion
Accounting
We recognize revenue and profit for our fabrication operations
as work progresses on long-term contracts using the
percentage-of-completion method when the applicable criteria are
met, which relies on estimates of total expected contract
revenue and costs. We follow this method because reasonably
dependable estimates of the revenue and costs applicable to
various stages of a contract can be made and because the
fabrication projects usually last several months. Recognized
revenues and profit are subject to revisions as the contract
progresses to completion. Revisions in profit estimates are
charged to income in the period in which the facts that give
rise to the revision become known. The typical duration of these
projects is three to 36 months. Due to the long-term nature
of some of our jobs, developing the estimates of cost often
requires significant judgment.
We estimate percentage-of-completion for compressor and
accessory fabrication on a direct labor hour to total labor hour
basis. This calculation requires management to estimate the
number of total labor hours required for each project and to
estimate the profit expected on the project. Production and
processing equipment fabrication percentage-of-completion is
estimated using the direct labor hour and cost to total cost
basis. The cost to total cost basis requires us to estimate the
amount of total costs (labor and materials) required to complete
each project. Because we have many fabrication projects in
process at any given time, we do not believe that materially
different results would be achieved if different estimates,
assumptions or conditions were used for any single project.
Factors that must be considered in estimating the work to be
completed and ultimate profit include labor productivity and
availability, the nature and complexity of work to be performed,
the impact of change orders, availability of raw materials and
the impact of delayed performance. If the aggregate combined
cost estimates for all of our fabrication businesses had been
higher or lower by 1% in 2009, our results of operations before
tax would have decreased or increased by approximately
$11.1 million. As of December 31, 2009, we had
recognized approximately $288.5 million in estimated
earnings on uncompleted contracts.
Contingencies
and Litigation
We are substantially self-insured for worker’s
compensation, employer’s liability, property, auto
liability, general liability and employee group health claims in
view of the relatively high per-incident deductibles we absorb
under our insurance arrangements for these risks. In addition,
we currently have a minimal amount of insurance on our offshore
assets. Losses up to deductible amounts are estimated and
accrued based upon known facts, historical trends and industry
averages. We review these estimates quarterly and believe such
accruals to be adequate. However, insurance liabilities are
difficult to estimate due to unknown factors, including the
severity of an injury, the determination of our liability in
proportion to other parties, the timeliness of reporting of
occurrences, ongoing treatment or loss mitigation, general
trends in litigation recovery outcomes and the effectiveness of
safety and risk management programs. Therefore, if our actual
58
Table of Contents
experience differs from the assumptions and estimates used for
recording the liabilities, adjustments may be required and would
be recorded in the period in which the difference becomes known.
As of December 31, 2009 and 2008, we had recorded
approximately $9.4 million and $10.6 million,
respectively, in claim reserves.
In the ordinary course of business, we are involved in various
pending or threatened legal actions. While we are unable to
predict the ultimate outcome of these actions, ASC 450,
“Contingencies” (“ASC 450”), requires
management to make judgments about future events that are
inherently uncertain. We are required to record (and have
recorded) a loss during any period in which we believe a
contingency is probable and can be reasonably estimated. In
making determinations of likely outcomes of pending or
threatened legal matters, we consider the evaluation of counsel
knowledgeable about each matter.
The impact of an uncertain tax position taken or expected to be
taken on an income tax return must be recognized in the
financial statements at the largest amount that is more likely
than not to be sustained upon examination by the relevant taxing
authority in accordance with ASC 740. We regularly assess and,
if required, establish accruals for income tax contingencies
pursuant to ASC 740 and non-income tax contingencies pursuant to
ASC 450 (together, the “tax contingencies”) that could
result from assessments of additional tax by taxing
jurisdictions in countries where we operate. The tax
contingencies are subject to a significant amount of judgment
and are reviewed and adjusted on a quarterly basis in light of
changing facts and circumstances considering the outcome
expected by management. As of December 31, 2009 and 2008,
we had recorded approximately $44.6 million and
$21.9 million (including penalties and interest and
discontinued operations), respectively, of accruals for tax
contingencies. If our actual experience differs from the
assumptions and estimates used for recording the liabilities,
adjustments may be required and would be recorded in the period
in which the difference becomes known.
Recent
Accounting Pronouncements
For a discussion of recent accounting pronouncements that may
affect us, see Note 22 to the Financial Statements.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to market risks primarily associated with changes
in interest rates and foreign currency exchange rates. We use
derivative financial instruments to minimize the risks
and/or
costs
associated with financial activities by managing our exposure to
interest rate fluctuations on a portion of our debt obligations.
We also use derivative financial instruments to minimize the
risks caused by currency fluctuations in certain foreign
currencies. We do not use derivative financial instruments for
trading or other speculative purposes.
As of December 31, 2009, after taking into consideration
interest rate swaps, we had approximately $406.4 million of
outstanding indebtedness that was effectively subject to
floating interest rates. A 1.0% increase in interest rates would
result in an annual increase in our interest expense of
approximately $4.1 million.
For further information regarding our use of interest rate swap
agreements to manage our exposure to interest rate fluctuations
on a portion of our debt obligations and derivative instruments
to minimize foreign currency exchange risk, see Note 12 to
the Financial Statements.
| Item 8. | Financial Statements and Supplementary Data |
The financial statements and supplementary information specified
by this Item are presented following Part IV, Item 15
of this report.
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
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Table of Contents
| Item 9A. | Controls and Procedures |
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
Our principal executive officer and principal financial officer
evaluated the effectiveness of our disclosure controls and
procedures (as defined in
Rule 13a-15(e)
of the Exchange Act) as of December 31, 2009. Based on the
evaluation, our principal executive officer and principal
financial officer have concluded that our disclosure controls
and procedures were effective to ensure that information
required to be disclosed in reports that we file or submit under
the Exchange Act is accumulated and communicated to management,
and made known to our principal executive officer and principal
financial officer, on a timely basis to ensure that it is
recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms.
Management’s
Annual Report on Internal Control Over Financial
Reporting
As required by Exchange Act
Rules 13a-15(c)
and
15d-15(c),
our management, including the Chief Executive Officer and Chief
Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting.
Management conducted an evaluation of the effectiveness of
internal control over financial reporting based on the Internal
Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness as to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Based on the results of management’s evaluation described
above, management concluded that our internal control over
financial reporting was effective as of December 31, 2009.
The effectiveness of internal control over financial reporting
as of December 31, 2009, was audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in its report found on the
following page of this report.
Changes
in Internal Control over Financial Reporting
There was no change in our internal control over financial
reporting during the last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
| Item 9B. | Other Information |
None.
60
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Exterran Holdings, Inc.
Houston, Texas
We have audited the internal control over financial reporting of
Exterran Holdings, Inc. and subsidiaries (the
“Company”) as of December 31, 2009, based on the
criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying
Management’s Annual Report
on Internal Control Over Financial Reporting
. Our
responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2009 of
the Company and our report dated February 25, 2010
expressed an unqualified opinion on those financial statements
and financial statement schedule.
/s/ DELOITTE & TOUCHE, LLP
Houston, Texas
February 25, 2010
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Table of Contents
| Item 10. | Directors, Executive Officers and Corporate Governance |
The information required in Part III, Item 10 of this
report is incorporated by reference to the sections entitled
“Election of Directors,” “Information Regarding
Corporate Governance, the Board of Directors and Committees of
the Board,” “Executive Officers” and
“Beneficial Ownership of Common Stock —
Section 16(a) Beneficial Ownership Reporting
Compliance” in our definitive proxy statement, to be filed
with the SEC within 120 days of the end of our fiscal year.
| Item 11. | Executive Compensation |
The information required in Part III, Item 11 of this
report is incorporated by reference to the sections entitled
“Compensation Discussion and Analysis” and
“Information Regarding Executive Compensation” in our
definitive proxy statement, to be filed with the SEC within
120 days of the end of our fiscal year.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Portions of the information required in Part III,
Item 12 of this report are incorporated by reference to the
section entitled “Beneficial Ownership of Common
Stock” in our definitive proxy statement, to be filed with
the SEC within 120 days of the end of our fiscal year.
Securities
Authorized for Issuance under Equity Compensation
Plans
The following table sets forth information as of
December 31, 2009, with respect to the Exterran
compensation plans under which our common stock is authorized
for issuance, aggregated as follows:
|
(c)
|
||||||||||||
|
(a)
|
Number of Securities
|
|||||||||||
|
Number of Securities
|
(b)
|
Remaining Available for
|
||||||||||
|
to be Issued Upon
|
Weighted-Average
|
Future Issuance Under
|
||||||||||
|
Exercise of
|
Exercise Price of
|
Equity Compensation Plans
|
||||||||||
|
Outstanding Options,
|
Outstanding Options,
|
(Excluding Securities
|
||||||||||
|
Warrants and Rights
|
Warrants and Rights
|
Reflected in Column (a))
|
||||||||||
|
Plan Category
|
(#) | ($) | (#) | |||||||||
|
Equity compensation plans approved by security holders(1)
|
1,400,218 | 31.67 | 3,119,446 | |||||||||
|
Equity compensation plans not approved by security holders(2)
|
— | — | 83,293 | |||||||||
|
Total
|
1,400,218 | 31.67 | 3,202,739 | |||||||||
| (1) | Comprised of the Exterran Holdings, Inc. 2007 Stock Incentive Plan and the Exterran Holdings, Inc. Employee Stock Purchase Plan. In addition to the outstanding options, as of December 31, 2009 there were 281,460 restricted stock units, payable in common stock upon vesting, outstanding under the 2007 Stock Incentive Plan. | |
| (2) | Comprised of the Exterran Holdings, Inc. Directors’ Stock and Deferral Plan. |
The table above does not include information with respect to
equity plans we assumed from Hanover or Universal (the
“Legacy Plans”). No additional grants may be made
under the Legacy Plans.
62
Table of Contents
The following equity grants are outstanding under Legacy Plans
that were approved by security holders:
|
Number of Shares
|
||||||||||||
|
Reserved for Issuance
|
||||||||||||
|
Upon the Exercise of
|
Weighted-
|
|||||||||||
|
Outstanding Stock
|
Average
|
Shares Available
|
||||||||||
|
Options
|
Exercise Price
|
for Future Grants
|
||||||||||
|
Plan or Agreement Name
|
(#) | ($) | (#) | |||||||||
|
Hanover Compressor Company
|
||||||||||||
|
2001 Equity Incentive Plan
|
45,568 | 41.60 | None | |||||||||
|
Hanover Compressor Company
|
||||||||||||
|
2003 Stock Incentive Plan
|
107,888 | 36.11 | None | |||||||||
|
Universal Compression Holdings, Inc.
|
||||||||||||
|
Incentive Stock Option Plan
|
1,268,900 | 34.61 | None | |||||||||
In addition, there are 12,081 restricted stock units issued and
outstanding under the Hanover Compressor Company 2006 Stock
Incentive Plan.
The Legacy Plan for which security holder approval was not
solicited or obtained and for which grants of stock options
remain outstanding consists of the Hanover Compression Company
1998 Stock Option Plan as set forth in the table below. This
plan has the following material features: (1) awards were
limited to stock options and were made to officers, directors,
employees, and consultants; (2) unless otherwise set forth
in an applicable stock option agreement the stock options vest
over a period of up to four years; (3) the term of the
stock options granted under the Legacy Plan may not exceed
10 years; and (4) no additional grants may be made
under this Legacy Plan.
|
Number of Shares
|
||||||||||||
|
Reserved for Issuance
|
||||||||||||
|
Upon the Exercise of
|
Weighted-
|
|||||||||||
|
Outstanding Stock
|
Average
|
Shares Available
|
||||||||||
|
Options
|
Exercise Price
|
for Future Grants
|
||||||||||
|
Plan or Agreement Name
|
(#) | ($) | (#) | |||||||||
|
Hanover Compressor Company
|
||||||||||||
|
1998 Stock Option Plan
|
10,464 | 44.76 | None | |||||||||
| Item 13. | Certain Relationships and Related Transactions and Director Independence |
The information required in Part III, Item 13 of this
report is incorporated by reference to the sections entitled
“Certain Relationships and Related Transactions” and
“Information Regarding Corporate Governance, the Board of
Directors and Committees of the Board — Director
Independence” in our definitive proxy statement, to be
filed with the SEC within 120 days of the end of our fiscal
year.
| Item 14. | Principal Accountant Fees and Services |
The information required in Part III, Item 14 of this
report is incorporated by reference to the section entitled
“Ratification of Appointment of Independent Registered
Public Accounting Firm” in our definitive proxy statement,
to be filed with the SEC within 120 days of the end of our
fiscal year.
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Table of Contents
| Item 15. | Exhibits, Financial Statement Schedules |
(a)
Documents filed as a part of this report.
1.
Financial Statements.
The following
financial statements are filed as a part of this report.
| F-1 | ||||
| F-2 | ||||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-6 | ||||
| F-8 |
2.
Financial Statement Schedule
| S-1 |
All other schedules have been omitted because they are not
required under the relevant instructions.
3.
Exhibits
|
Exhibit
|
Description
|
|||
| 2 | .1 | Contribution, Conveyance and Assumption Agreement, dated June 25, 2008, by and among Exterran Holdings, Inc., Hanover Compressor Company, Hanover Compression General Holdings, LLC, Exterran Energy Solutions, L.P., Exterran ABS 2007 LLC, Exterran ABS Leasing 2007 LLC, EES Leasing LLC, EXH GP LP LLC, Exterran GP LLC, EXH MLP LP LLC, Exterran General Partner, L.P., EXLP Operating LLC, EXLP Leasing LLC and Exterran Partners, L.P., incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed June 26, 2008 | ||
| 2 | .2 | Contribution, Conveyance and Assumption Agreement, dated October 2, 2009, by and among Exterran Holdings, Inc., Exterran Energy Corp., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., EES Leasing LLC, EXH GP LP LLC, Exterran GP LLC, EXH MLP LP LLC, Exterran General Partner, L.P., EXLP Operating LLC, EXLP Leasing LLC and Exterran Partners, L.P., incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed October 5, 2009 | ||
| 3 | .1 | Restated Certificate of Incorporation of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed August 20, 2007 | ||
| 3 | .2 | Second Amended and Restated Bylaws of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 | ||
| 4 | .1 | Eighth Supplemental Indenture, dated August 20, 2007, by and between Hanover Compressor Company, Exterran Holdings, Inc., and U.S. Bank National Association, as Trustee, for the 4.75% Convertible Senior Notes due 2014, incorporated by reference to Exhibit 10.15 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 4 | .2 | Indenture, dated as of June 10, 2009, between Exterran Holdings, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed June 16, 2009 | ||
| 4 | .3 | Supplemental Indenture, dated as of June 10, 2009, between Exterran Holdings, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed June 16, 2009 | ||
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Table of Contents
|
Exhibit
|
Description
|
|||
| 10 | .1 | Senior Secured Credit Agreement, dated August 20, 2007, by and among Exterran Holdings, Inc., as the U.S. Borrower and a Canadian Guarantor, Exterran Canada, Limited Partnership, as the Canadian Borrower, Wachovia Bank, National Association, individually and as U.S. Administrative Agent, Wachovia Capital Finance Corporation (Canada), individually and as Canadian Administrative Agent, JPMorgan Chase Bank, N.A., individually and as Syndication Agent; Wachovia Capital Markets, LLC and J.P. Morgan Securities Inc. as the Joint Lead Arrangers and Joint Book Runners, Bank of America, N.A., Calyon New York Branch and Fortis Capital Corp., as the Documentation Agents, and each of the lenders parties thereto or which becomes a signatory thereto (the “Credit Agreement”), incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .2 | U.S. Guaranty Agreement, dated as of August 20, 2007, made by Exterran, Inc., EI Leasing LLC, UCI MLP LP LLC, Exterran Energy Solutions, L.P. and each of the subsidiary guarantors that become a party thereto from time to time, as guarantors, in favor of Wachovia Bank, National Association, as the U.S. Administrative Agent for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .3 | U.S. Pledge Agreement made by Exterran Holdings, Inc., Exterran, Inc., Exterran Energy Solutions, L.P., Hanover Compression General Holdings LLC, Hanover HL, LLC, Enterra Compression Investment Company, UCI MLP LP LLC, UCO General Partner, LP, UCI GP LP LLC, and UCO GP, LLC, and each of the subsidiaries that become a party thereto from time to time, as the Pledgors, in favor of Wachovia Bank, National Association, as U.S. Administrative Agent for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .4 | U.S. Collateral Agreement, dated as of August 20, 2007, made by Exterran Holdings, Inc., Exterran, Inc., Exterran Energy Solutions, L.P., EI Leasing LLC, UCI MLP LP LLC and each of the subsidiaries that become a party thereto from time to time, as grantors, in favor of Wachovia Bank, National Association, as U.S. Administrative Agent, for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .5 | Canadian Collateral Agreement, dated as of August 20, 2007 made by Exterran Canada, Limited Partnership, together with any other significant Canadian subsidiary that executes a joinder agreement and becomes a party to the Credit Agreement, in favor of Wachovia Capital Finance Corporation (Canada), as Canadian Administrative Agent, for the Canadian Tranche Revolving Lenders under the Credit Agreement, incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .6 | Indenture, dated August 20, 2007, by and between Exterran ABS 2007 LLC, as Issuer, Exterran ABS Leasing 2007 LLC, as Exterran ABS Lessor, and Wells Fargo Bank, National Association, as Indenture Trustee, with respect to the $1,000,000,000 asset-backed securitization facility consisting of $1,000,000,000 of Series 2007-1 Notes (the “Indenture”), incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .7 | Series 2007-1 Supplement, dated as of August 20, 2007, to the Indenture, incorporated by reference to Exhibit 10.9 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .8 | Guaranty, dated as of August 20, 2007, issued by Exterran Holdings, Inc. for the benefit of Exterran ABS 2007 LLC as Issuer, Exterran ABS Leasing 2007 LLC, as Equipment Lessor and Wells Fargo Bank, National Association, , as Indenture Trustee, incorporated by reference to Exhibit 10.10 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .9 | Management Agreement, dated as of August 20, 2007, by and between Exterran, Inc., as Manager, Exterran ABS Leasing 2007 LLC as ABS Lessor and Exterran ABS 2007 LLC, as Issuer, incorporated by reference to Exhibit 10.11 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .10 | Intercreditor and Collateral Agency Agreement, dated as of August 20, 2007, by and among Exterran, Inc., in its individual capacity and as Manager, Exterran ABS 2007 LLC, as Issuer, Wells Fargo Bank, National Association, as Indenture Trustee, Wachovia Bank, National Association, as Bank Agent, various financial institutions as lenders thereto and JP Morgan Chase Bank, N.A., in its individual capacity and as Intercreditor Collateral Agent, incorporated by reference to Exhibit 10.12 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
65
Table of Contents
|
Exhibit
|
Description
|
|||
| 10 | .11 | Intercreditor and Collateral Agency Agreement, dated as of August 20, 2007, by and among Exterran Energy Solutions, L.P., in its individual capacity and as Manager, Exterran ABS 2007 LLC, as Issuer, Wells Fargo Bank, National Association, as Indenture Trustee, Wachovia Bank, National Association, as Bank Agent, various financial institutions as lenders thereto and Wells Fargo Bank, National Association, in its individual capacity and as Intercreditor Collateral Agent, incorporated by reference to Exhibit 10.13 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .12 | Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and J.P. Morgan Chase Bank, National Association, London Branch, as dealer, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .13 | Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Bank of America, N.A., as dealer, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .14 | Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Wachovia Bank, National Association, as dealer, incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .15 | Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Credit Suisse International, as dealer, incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .16 | Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and J.P. Morgan Chase Bank, National Association, London Branch, as dealer, incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .17 | Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Bank of America, N.A., as dealer, incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .18 | Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Wachovia Bank, National Association, as dealer, incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .19 | Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Credit Suisse International, as dealer, incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .20** | Agreement and Plan of Merger, dated as of February 5, 2007, by and among Hanover Compressor Company, Universal Compression Holdings, Inc., Iliad Holdings, Inc., Hector Sub, Inc. and Ulysses Sub, Inc., incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed August 20, 2007 | ||
| 10 | .21 | Amendment No. 1, dated as of June 25, 2007, to Agreement and Plan of Merger, dated as of February 5, 2007, by and among Hanover Compressor Company, Universal Compression Holdings, Inc., Exterran Holdings, Inc. (formerly Iliad Holdings, Inc.), Hector Sub, Inc. and Ulysses Sub, Inc., incorporated by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K filed August 20, 2007 | ||
| 10 | .22 | Amended and Restated Contribution, Conveyance and Assumption Agreement, dated July 6, 2007, by and among Universal Compression, Inc., UCO Compression 2005 LLC, UCI Leasing LLC, UCO GP, LLC, UCI GP LP LLC, UCO General Partner, LP, UCI MLP LP LLC, UCLP Operating LLC, UCLP Leasing LLC and Universal Compression Partners, L.P., incorporated by reference to Exhibit 2.1 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed July 11, 2007 | ||
| 10 | .23 | Omnibus Agreement, dated October 20, 2006, by and among Universal Compression Partners, L.P., UC Operating Partnership, L.P., UCO GP, LLC, UCO General Partner, LP, Universal Compression, Inc., Universal Compression Holdings, Inc. and UCLP OLP GP LLC, incorporated by reference to Exhibit 10.2 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed October 26, 2006 | ||
| 10 | .24 | First Amendment to Omnibus Agreement, dated July 9, 2007, by and among Universal Compression Partners, L.P., Universal Compression Holdings, Inc., Universal Compression, Inc., UCO GP, LLC, UCO General Partner, LP and UCLP Operating LLC, incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed July 11, 2007 | ||
66
Table of Contents
|
Exhibit
|
Description
|
|||
| 10 | .25 | First Amended and Restated Omnibus Agreement, dated as of August 20, 2007, by and among Exterran Holdings, Inc., Exterran, Inc., UCO GP, LLC, UCO General Partner, LP, Exterran Partners, L.P., EXLP Operating LLC and Exterran Energy Solutions, L.P. (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended), incorporated by reference to Exhibit 10.20 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 | ||
| 10 | .26 | Amendment No. 1, dated as of July 30, 2008, to First Amended and Restated Omnibus Agreement, dated as of August 20, 2007, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., EXLP Operating LLC and Exterran Partners, L.P. (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended), incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 | ||
| 10 | .27* | Second Amended and Restated Omnibus Agreement, dated as of November 10, 2009, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., EXLP Operating LLC and Exterran Partners, L.P. (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended) | ||
| 10 | .28 | Office Lease Agreement by and between RFP Lincoln Greenspoint, LLC and Exterran Energy Solutions, L.P., incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed August 30, 2007 | ||
| 10 | .29† | Exterran Holdings, Inc. 2007 Stock Incentive Plan, incorporated by reference to Exhibit 10.16 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 | ||
| 10 | .30† | Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed March 26, 2009 | ||
| 10 | .31† | Amendment No. 1 to Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed March 26, 2009 | ||
| 10 | .32† | Amendment No. 2 to Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .33† | Exterran Holdings, Inc. Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.16 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .34† | First Amendment to Exterran Holdings, Inc. Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .35† | Exterran Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .36† | Exterran Holdings, Inc. Deferred Compensation Plan, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .37† | Exterran Employees’ Supplemental Savings Plan, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .38† | Exterran Annual Performance Pay Plan, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .39† | First Amendment to Universal Compression, Inc. 401(k) Retirement and Savings Plan, incorporated by reference to Exhibit 10.2 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed August 3, 2007 | ||
| 10 | .40† | Amendment Number Two to Universal Compression Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed August 3, 2007 | ||
67
Table of Contents
|
Exhibit
|
Description
|
|||
| 10 | .41† | Form of Incentive Stock Option Award Notice, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .42† | Form of Non-Qualified Stock Option Award Notice, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .43† | Form of Restricted Stock Award Notice, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .44† | Form of Restricted Stock Unit Award Notice, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .45† | Form of Grant of Unit Appreciation Rights, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .46† | Form of Amendment to Grant of Unit Appreciation Rights, incorporated by reference to Exhibit 10.3 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed August 3, 2007 | ||
| 10 | .47† | Form of Second Amendment to Grant of Unit Appreciation Rights, incorporated by reference to Exhibit 10.35 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .48† | Form of Directors’ Non-Qualified Stock Option Award Notice, incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 | ||
| 10 | .49† | Form of Directors’ Restricted Stock Award Notice, incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 | ||
| 10 | .50† | Form of Amendment to Incentive and Non-Qualified Stock Option Award Agreements of Ernie L. Danner, incorporated by reference to Exhibit 10.4 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed August 3, 2007 | ||
| 10 | .51† | Form of Indemnification Agreement, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .52† | Consulting Agreement between Exterran Holdings, Inc. and Ernie L. Danner, dated August 20, 2007, incorporated by reference to Exhibit 10.17 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .53† | Form of Exterran Holdings, Inc. Change of Control Agreement, incorporated by reference to Exhibit 10.19 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .54† | Form of First Amendment to Exterran Holdings, Inc. Change of Control Agreement, incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 | ||
| 10 | .55† | Change of Control Agreement with Ernie L. Danner, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed October 10, 2008 | ||
| 10 | .56† | Form of Amendment No. 1 to Hanover Compressor Company Change of Control Agreement, incorporated by reference to Exhibit 10.20 of Exterran the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .57† | Amendment No. 2 to Hanover Compressor Company Change of Control Agreement with Norman A. Mckay, incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 | ||
| 10 | .58† | Letter dated March 15, 2001, with respect to certain retirement benefits to be provided to Stephen A. Snider, incorporated by reference to Exhibit 10.43 of Universal Compression Holdings, Inc.’s Annual Report on Form 10-K for the year ended March 31, 2001 | ||
| 10 | .59† | First Amendment to Incentive Stock Option Agreements with Stephen A. Snider, incorporated by reference to Exhibit 10.44 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .60† | First Amendment to Non-qualified Stock Option Agreements with Stephen A. Snider, incorporated by reference to Exhibit 10.45 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .61† | First Amendment to Restricted Stock Agreement with Stephen A. Snider, incorporated by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
68
Table of Contents
|
Exhibit
|
Description
|
|||
| 10 | .62† | First Amendment to Exterran Holdings, Inc. Award Notice for Time-Vested Incentive Stock Option for Stephen A. Snider, incorporated by reference to Exhibit 10.47 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .63† | First Amendment to Exterran Holdings, Inc. Award Notice for Time-Vested Non-qualified Stock Option for Stephen A. Snider, incorporated by reference to Exhibit 10.48 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .64† | First Amendment to Exterran Holdings, Inc. Award Notice for Time-Vested Restricted Stock for Stephen A. Snider, incorporated by reference to Exhibit 10.49 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .65† | Second Amendment to Grant of Unit Appreciation Rights for Stephen A. Snider, incorporated by reference to Exhibit 10.50 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .66† | Form of Exterran Holdings, Inc. Award Notice for Time-Vested Incentive Stock Option, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .67† | Form of Exterran Holdings, Inc. Award Notice for Time-Vested Non-Qualified Stock Option, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .68† | Form of Exterran Holdings, Inc. Award Notice for Time-Vested Restricted Stock, incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .69† | Form of Exterran Holdings, Inc. Award Notice for Time-Vested Restricted Stock for Director, incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .70† | Form of Exterran Holdings, Inc. Award Notice for Time-Vested Stock-Settled Restricted Stock Units, incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .71† | Exterran Holdings, Inc. Award Notice for Time-Vested Incentive Stock Option for Stephen A. Snider, incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .72† | Exterran Holdings, Inc. Award Notice for Time-Vested Non-Qualified Stock Option for Stephen A. Snider, incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .73† | Exterran Holdings, Inc. Award Notice for Time-Vested Restricted Stock for Stephen A. Snider, incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .74† | Form of Consulting Agreement by and between Exterran Holdings, Inc. and Stephen A. Snider, incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .75† | Amendment and Discharge of Change of Control Agreement by and between Exterran Holdings, Inc. and Norman A. Mckay, incorporated by reference to Exhibit 10.12 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 | ||
| 21 | .1* | List of Subsidiaries | ||
| 23 | .1* | Consent of Deloitte & Touche LLP | ||
| 31 | .1* | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31 | .2* | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .1* | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .2* | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
69
Table of Contents
| † | Management contract or compensatory plan or arrangement. | |
| * | Filed herewith. | |
| ** | The registrant hereby agrees to supplementally furnish the staff, on a confidential basis, a copy of any omitted schedule upon the staff’s request. |
70
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Exterran Holdings, Inc.
/s/
ERNIE
L. DANNER
Name: Ernie L. Danner
Title: Chief Executive Officer
Date: February 25, 2010
71
Table of Contents
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ernie L. Danner, J.
Michael Anderson, Kenneth R. Bickett and Donald C. Wayne, and
each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution for him and
in his name, place and stead, in any and all capacities, to sign
any and all amendments to this Report, and to file the same,
with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission granting
unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and
necessary to be done as fully to all said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
Signature
|
Title
|
Date
|
||||
|
/s/
Ernie
L. Danner
|
President, Chief Executive Officer and Director (Principal Executive Officer) | February 25, 2010 | ||||
|
/s/
J.
Michael Anderson
|
Senior Vice President and Chief Financial Officer (Principal Financial Officer) | February 25, 2010 | ||||
|
/s/
Kenneth
R. Bickett
|
Vice President, Finance and Accounting (Principal Accounting Officer) | February 25, 2010 | ||||
|
/s/
Janet
F. Clark
|
Director | February 25, 2010 | ||||
|
/s/
Uriel
E. Dutton
|
Director | February 25, 2010 | ||||
|
/s/
Gordon
T. Hall
|
Director | February 25, 2010 | ||||
|
/s/
J.W.G.
Honeybourne
|
Director | February 25, 2010 | ||||
|
/s/
John
E. Jackson
|
Director | February 25, 2010 | ||||
|
/s/
Mark
A. McCollum
|
Director | February 25, 2010 | ||||
|
/s/
William
C. Pate
|
Director | February 25, 2010 | ||||
|
/s/
Stephen
M. Pazuk
|
Director | February 25, 2010 | ||||
|
/s/
Christopher
T. Seaver
|
Director | February 25, 2010 | ||||
72
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Exterran Holdings, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of
Exterran Holdings, Inc. and subsidiaries (the
“Company”) as of December 31, 2009 and 2008, and
the related consolidated statements of operations, comprehensive
income (loss), stockholders’ equity, and cash flows for
each of the three years in the period ended December 31,
2009. Our audits also included the financial statement schedule
for each of the three years in the period ended
December 31, 2009 listed in the Index at Item 15.
These financial statements and financial statement schedule are
the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company at December 31, 2009 and 2008, and the results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2009, in conformity
with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial
statement schedule when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 25, 2010,
expressed an unqualified opinion on the Company’s internal
control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 25, 2010
F-1
Table of Contents
EXTERRAN
HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except par value and share amounts)
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 83,745 | $ | 123,906 | ||||
|
Restricted cash
|
14,871 | 7,563 | ||||||
|
Accounts receivable, net of allowance of $15,342 and $13,738,
respectively
|
447,504 | 551,362 | ||||||
|
Inventory, net
|
489,982 | 495,809 | ||||||
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
180,181 | 219,487 | ||||||
|
Current deferred income taxes
|
25,913 | 36,816 | ||||||
|
Other current assets
|
118,813 | 121,009 | ||||||
|
Current assets associated with discontinued operations
|
58,152 | 139,178 | ||||||
|
Total current assets
|
1,419,161 | 1,695,130 | ||||||
|
Property, plant and equipment, net
|
3,404,354 | 3,436,222 | ||||||
|
Goodwill, net
|
195,164 | 308,024 | ||||||
|
Intangible and other assets, net
|
273,883 | 294,252 | ||||||
|
Investments in non-consolidated affiliates
|
— | 83,933 | ||||||
|
Long-term assets associated with discontinued operations
|
386 | 275,066 | ||||||
|
Total assets
|
$ | 5,292,948 | $ | 6,092,627 | ||||
| LIABILITIES AND EQUITY | ||||||||
|
Current liabilities:
|
||||||||
|
Current maturities of long-term debt
|
$ | — | $ | 101 | ||||
|
Accounts payable, trade
|
131,337 | 216,707 | ||||||
|
Accrued liabilities
|
321,412 | 312,270 | ||||||
|
Deferred revenue
|
206,160 | 192,556 | ||||||
|
Billings on uncompleted contracts in excess of costs and
estimated earnings
|
156,245 | 157,955 | ||||||
|
Current liabilities associated with discontinued operations
|
21,879 | 37,632 | ||||||
|
Total current liabilities
|
837,033 | 917,221 | ||||||
|
Long-term debt
|
2,260,936 | 2,512,328 | ||||||
|
Other long-term liabilities
|
179,327 | 182,679 | ||||||
|
Deferred income taxes
|
182,126 | 197,525 | ||||||
|
Long-term liabilities associated with discontinued operations
|
16,667 | 54,797 | ||||||
|
Total liabilities
|
3,476,089 | 3,864,550 | ||||||
|
Commitments and contingencies (Note 21)
|
||||||||
|
Equity:
|
||||||||
|
Preferred stock, $0.01 par value per share;
50,000,000 shares authorized; zero issued
|
— | — | ||||||
|
Common stock, $0.01 par value per share,
250,000,000 shares authorized; 68,195,447 and
67,202,109 shares issued, respectively
|
682 | 672 | ||||||
|
Additional paid-in capital
|
3,434,618 | 3,354,922 | ||||||
|
Accumulated other comprehensive loss
|
(27,879 | ) | (94,767 | ) | ||||
|
Accumulated deficit
|
(1,565,489 | ) | (1,016,082 | ) | ||||
|
Treasury stock — 5,667,897 and 5,535,671 common
shares, at cost, respectively
|
(201,935 | ) | (200,959 | ) | ||||
|
Total Exterran stockholders’ equity
|
1,639,997 | 2,043,786 | ||||||
|
Noncontrolling interest
|
176,862 | 184,291 | ||||||
|
Total equity
|
1,816,859 | 2,228,077 | ||||||
|
Total liabilities and equity
|
$ | 5,292,948 | $ | 6,092,627 | ||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
Table of Contents
EXTERRAN
HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Revenues:
|
||||||||||||
|
North America contract operations
|
$ | 695,315 | $ | 790,573 | $ | 551,140 | ||||||
|
International contract operations
|
391,995 | 379,817 | 239,115 | |||||||||
|
Aftermarket services
|
308,873 | 364,157 | 257,484 | |||||||||
|
Fabrication
|
1,319,418 | 1,489,572 | 1,378,049 | |||||||||
| 2,715,601 | 3,024,119 | 2,425,788 | ||||||||||
|
Costs and Expenses:
|
||||||||||||
|
Cost of sales (excluding depreciation and amortization expense):
|
||||||||||||
|
North America contract operations
|
298,714 | 341,865 | 232,238 | |||||||||
|
International contract operations
|
149,253 | 144,906 | 91,687 | |||||||||
|
Aftermarket services
|
245,886 | 291,560 | 202,817 | |||||||||
|
Fabrication
|
1,106,166 | 1,220,056 | 1,144,580 | |||||||||
|
Selling, general and administrative
|
337,620 | 352,899 | 247,983 | |||||||||
|
Merger and integration expenses
|
— | 11,384 | 46,201 | |||||||||
|
Depreciation and amortization
|
352,785 | 330,886 | 232,492 | |||||||||
|
Fleet impairment
|
90,991 | 24,109 | 61,945 | |||||||||
|
Restructuring charges
|
20,326 | — | — | |||||||||
|
Goodwill impairment
|
150,778 | 1,148,371 | — | |||||||||
|
Interest expense
|
122,845 | 129,784 | 130,303 | |||||||||
|
Debt extinguishment charges
|
— | — | 70,150 | |||||||||
|
Equity in (income) loss of non-consolidated affiliates
|
91,154 | (23,974 | ) | (12,498 | ) | |||||||
|
Other (income) expense, net
|
(53,360 | ) | (3,118 | ) | (19,771 | ) | ||||||
| 2,913,158 | 3,968,728 | 2,428,127 | ||||||||||
|
Loss before income taxes
|
(197,557 | ) | (944,609 | ) | (2,339 | ) | ||||||
|
Provision for income taxes
|
51,667 | 37,219 | 1,558 | |||||||||
|
Loss from continuing operations
|
(249,224 | ) | (981,828 | ) | (3,897 | ) | ||||||
|
Income (loss) from discontinued operations, net of tax
|
(296,239 | ) | 46,752 | 44,773 | ||||||||
|
Net income (loss)
|
(545,463 | ) | (935,076 | ) | 40,876 | |||||||
|
Less: Net income attributable to the noncontrolling interest
|
(3,944 | ) | (12,273 | ) | (6,307 | ) | ||||||
|
Net income (loss) attributable to Exterran stockholders
|
$ | (549,407 | ) | $ | (947,349 | ) | $ | 34,569 | ||||
|
Basic income (loss) per common share:
|
||||||||||||
|
Loss from continuing operations attributable to Exterran
stockholders
|
$ | (4.12 | ) | $ | (15.39 | ) | $ | (0.22 | ) | |||
|
Income (loss) from discontinued operations attributable to
Exterran stockholders
|
(4.83 | ) | 0.72 | 0.98 | ||||||||
|
Net income (loss) attributable to Exterran stockholders
|
$ | (8.95 | ) | $ | (14.67 | ) | $ | 0.76 | ||||
|
Diluted income (loss) per common share:
|
||||||||||||
|
Loss from continuing operations attributable to Exterran
stockholders
|
$ | (4.12 | ) | $ | (15.39 | ) | $ | (0.22 | ) | |||
|
Income (loss) from discontinued operations attributable to
Exterran stockholders
|
(4.83 | ) | 0.72 | 0.98 | ||||||||
|
Net income (loss) attributable to Exterran stockholders
|
$ | (8.95 | ) | $ | (14.67 | ) | $ | 0.76 | ||||
|
Weighted average common and equivalent shares outstanding:
|
||||||||||||
|
Basic
|
61,406 | 64,580 | 45,580 | |||||||||
|
Diluted
|
61,406 | 64,580 | 45,580 | |||||||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
Table of Contents
EXTERRAN
HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In
thousands)
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Net income (loss)
|
$ | (545,463 | ) | $ | (935,076 | ) | $ | 40,876 | ||||
|
Other comprehensive income, net of tax:
|
||||||||||||
|
Change in fair value of derivative financial instruments
|
13,088 | (46,366 | ) | (20,875 | ) | |||||||
|
Foreign currency translation adjustment
|
56,640 | (65,124 | ) | 17,617 | ||||||||
|
Comprehensive income (loss)
|
(475,735 | ) | (1,046,566 | ) | 37,618 | |||||||
|
Less: Comprehensive income attributable to the noncontrolling
interest
|
6,784 | 8,554 | 3,028 | |||||||||
|
Comprehensive income (loss) attributable to Exterran
|
$ | (482,519 | ) | $ | (1,055,120 | ) | $ | 34,590 | ||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
Table of Contents
EXTERRAN
HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
| Exterran Holdings, Inc. Stockholders | ||||||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||||||
|
Additional
|
Other
|
Noncontrolling
|
||||||||||||||||||||||||||||||||||
| Common Stock |
Paid-in
|
Comprehensive
|
Treasury Stock |
Accumulated
|
Interest in
|
|||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Income (Loss) | Shares | Amount | Deficit | Subsidiaries | Total | ||||||||||||||||||||||||||||
| (In thousands, except share data) | ||||||||||||||||||||||||||||||||||||
|
Balance at December 31, 2006
|
33,743,363 | $ | 34 | $ | 1,104,800 | $ | 12,983 | (146,173 | ) | $ | (3,970 | ) | $ | (99,565 | ) | $ | — | $ | 1,014,282 | |||||||||||||||||
|
Record purchase price for Universal acquisition
|
30,273,866 | 302 | 2,070,796 | 2,071,098 | ||||||||||||||||||||||||||||||||
|
Noncontrolling interest from Universal acquisition
|
192,460 | 192,460 | ||||||||||||||||||||||||||||||||||
|
Change in par value
|
(3,301 | ) | 305 | (305 | ) | — | ||||||||||||||||||||||||||||||
|
Unvested shares of restricted stock assumed in merger
|
94,911 | 1 | 1 | |||||||||||||||||||||||||||||||||
|
Convertible debentures converted to common stock
|
1,588,993 | 16 | 81,666 | 81,682 | ||||||||||||||||||||||||||||||||
|
Treasury stock purchased
|
(1,258,400 | ) | (99,998 | ) | (99,998 | ) | ||||||||||||||||||||||||||||||
|
Retirement of treasury stock
|
(153,191 | ) | (2 | ) | (3,968 | ) | 153,191 | 3,970 | — | |||||||||||||||||||||||||||
|
Option exercises
|
820,672 | 8 | 27,263 | 27,271 | ||||||||||||||||||||||||||||||||
|
Issuance of 401(k) shares
|
8,363 | 683 | 683 | |||||||||||||||||||||||||||||||||
|
Stock-based compensation expense, net of forfeitures
|
200,743 | 2 | 23,309 | (35,855 | ) | (920 | ) | 22,391 | ||||||||||||||||||||||||||||
|
Income tax benefit from stock compensation expense
|
13,077 | 13,077 | ||||||||||||||||||||||||||||||||||
|
Adoption of new accounting principle on income taxes
|
(3,737 | ) | (3,737 | ) | ||||||||||||||||||||||||||||||||
|
Cash distribution to Noncontrolling unitholders of the
Partnership
|
(3,336 | ) | (3,336 | ) | ||||||||||||||||||||||||||||||||
|
Other
|
72 | 72 | ||||||||||||||||||||||||||||||||||
|
Net income
|
34,569 | 6,307 | 40,876 | |||||||||||||||||||||||||||||||||
|
Change in fair value of derivatives, net of tax
|
(17,596 | ) | (3,279 | ) | (20,875 | ) | ||||||||||||||||||||||||||||||
|
Currency translation adjustment
|
17,617 | 17,617 | ||||||||||||||||||||||||||||||||||
|
Balance at December 31, 2007
|
66,574,419 | $ | 666 | $ | 3,317,321 | $ | 13,004 | (1,287,237 | ) | $ | (99,998 | ) | $ | (68,733 | ) | $ | 191,304 | $ | 3,353,564 | |||||||||||||||||
|
Treasury stock purchased
|
(4,173,262 | ) | (100,961 | ) | (100,961 | ) | ||||||||||||||||||||||||||||||
|
Option exercises
|
168,058 | 2 | 5,148 | 5,150 | ||||||||||||||||||||||||||||||||
|
Shares issued in employee stock purchase plan
|
115,647 | 1 | 4,112 | 4,113 | ||||||||||||||||||||||||||||||||
|
Stock-based compensation expense, net of forfeitures
|
343,985 | 3 | 17,672 | (75,172 | ) | (1,140 | ) | 16,535 | ||||||||||||||||||||||||||||
|
Income tax benefit from stock compensation expense
|
10,669 | 10,669 | ||||||||||||||||||||||||||||||||||
|
Cash distribution to Noncontrolling unitholders of the
Partnership
|
(14,489 | ) | (14,489 | ) | ||||||||||||||||||||||||||||||||
|
Other
|
62 | 62 | ||||||||||||||||||||||||||||||||||
|
Net income
|
(947,349 | ) | 12,273 | (935,076 | ) | |||||||||||||||||||||||||||||||
|
Change in fair value of derivatives, net of tax
|
(42,647 | ) | (3,719 | ) | (46,366 | ) | ||||||||||||||||||||||||||||||
|
Currency translation adjustment
|
(65,124 | ) | (65,124 | ) | ||||||||||||||||||||||||||||||||
|
Balance at December 31, 2008
|
67,202,109 | $ | 672 | $ | 3,354,922 | $ | (94,767 | ) | (5,535,671 | ) | $ | (200,959 | ) | $ | (1,016,082 | ) | $ | 184,291 | $ | 2,228,077 | ||||||||||||||||
|
Treasury stock purchased
|
(57,284 | ) | (976 | ) | (976 | ) | ||||||||||||||||||||||||||||||
|
Shares issued in employee stock purchase plan
|
191,384 | 2 | 2,843 | 2,845 | ||||||||||||||||||||||||||||||||
|
Stock-based compensation expense, net of forfeitures
|
801,954 | 8 | 23,815 | (74,942 | ) | 926 | 24,749 | |||||||||||||||||||||||||||||
|
Income tax expense from stock compensation expense
|
(2,674 | ) | (2,674 | ) | ||||||||||||||||||||||||||||||||
|
Cash distribution to Noncontrolling unitholders of the
Partnership
|
(15,459 | ) | (15,459 | ) | ||||||||||||||||||||||||||||||||
|
Issuance of convertible senior notes and purchased call options
and warrants sold
|
56,745 | 56,745 | ||||||||||||||||||||||||||||||||||
|
Other
|
(1,033 | ) | 320 | (713 | ) | |||||||||||||||||||||||||||||||
|
Net income (loss)
|
(549,407 | ) | 3,944 | (545,463 | ) | |||||||||||||||||||||||||||||||
|
Change in fair value of derivatives, net of tax
|
10,248 | 2,840 | 13,088 | |||||||||||||||||||||||||||||||||
|
Currency translation adjustment
|
56,640 | 56,640 | ||||||||||||||||||||||||||||||||||
|
Balance at December 31, 2009
|
68,195,447 | $ | 682 | $ | 3,434,618 | $ | (27,879 | ) | (5,667,897 | ) | $ | (201,935 | ) | $ | (1,565,489 | ) | $ | 176,862 | $ | 1,816,859 | ||||||||||||||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
Table of Contents
EXTERRAN
HOLDINGS, INC.
(In
thousands)
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income (loss)
|
$ | (545,463 | ) | $ | (935,076 | ) | $ | 40,876 | ||||
|
Adjustments:
|
||||||||||||
|
Depreciation and amortization
|
352,785 | 330,886 | 232,492 | |||||||||
|
Fleet impairment
|
90,991 | 24,109 | 61,945 | |||||||||
|
Facility impairment
|
5,997 | — | — | |||||||||
|
Goodwill impairment
|
150,778 | 1,148,371 | — | |||||||||
|
Deferred financing cost amortization and write-off
|
3,913 | 3,391 | 21,120 | |||||||||
|
(Income) loss from discontinued operations, net of tax
|
296,239 | (46,752 | ) | (44,773 | ) | |||||||
|
Amortization of debt discount
|
8,329 | — | — | |||||||||
|
Provision for doubtful accounts
|
5,929 | 4,043 | 2,189 | |||||||||
|
Gain on sale of property, plant and equipment
|
(33,156 | ) | (4,331 | ) | (8,082 | ) | ||||||
|
Gain on sale of business
|
(3,193 | ) | — | — | ||||||||
|
Equity in (income) loss of non-consolidated affiliates, net of
dividends received
|
91,154 | (20,669 | ) | (3,982 | ) | |||||||
|
Interest rate swaps
|
1,576 | 3,192 | (1,151 | ) | ||||||||
|
(Gain) loss on remeasurement of intercompany balances
|
(15,097 | ) | 10,917 | (5,408 | ) | |||||||
|
Stock compensation expense
|
24,749 | 16,535 | 22,391 | |||||||||
|
Deferred income tax provision
|
(6,684 | ) | (50,898 | ) | (40,864 | ) | ||||||
|
Changes in assets and liabilities, net of acquisitions:
|
||||||||||||
|
Accounts receivable and notes
|
111,464 | (94,558 | ) | (1,642 | ) | |||||||
|
Inventory
|
39,344 | (121,119 | ) | 97,316 | ||||||||
|
Costs and estimated earnings versus billings on uncompleted
contracts
|
35,587 | 53,696 | (93,946 | ) | ||||||||
|
Prepaid and other current assets
|
1,407 | (16,786 | ) | (6,385 | ) | |||||||
|
Accounts payable and other liabilities
|
(68,515 | ) | 13,228 | 18,032 | ||||||||
|
Deferred revenue
|
(62,337 | ) | 112,894 | (112,533 | ) | |||||||
|
Other
|
(8,989 | ) | 11,448 | 31,725 | ||||||||
|
Net cash provided by continuing operations
|
476,808 | 442,521 | 209,320 | |||||||||
|
Net cash provided by discontinued operations
|
710 | 43,534 | 29,392 | |||||||||
|
Net cash provided by operating activities
|
477,518 | 486,055 | 238,712 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Capital expenditures
|
(368,901 | ) | (465,736 | ) | (322,798 | ) | ||||||
|
Proceeds from sale of property, plant and equipment
|
69,097 | 56,574 | 36,277 | |||||||||
|
Cash paid for business acquisitions, net of cash acquired
|
— | (133,590 | ) | 25,873 | ||||||||
|
Proceeds from sale of business
|
5,642 | — | — | |||||||||
|
Return of investments in non-consolidated affiliates
|
3,139 | — | — | |||||||||
|
(Increase) decrease in restricted cash
|
(7,308 | ) | 1,570 | (9,133 | ) | |||||||
|
Cash invested in non-consolidated affiliates
|
(1,959 | ) | — | (3,095 | ) | |||||||
|
Net cash used in continuing operations
|
(300,290 | ) | (541,182 | ) | (272,876 | ) | ||||||
|
Net cash used in discontinued operations
|
(710 | ) | (41,719 | ) | (29,392 | ) | ||||||
|
Net cash used in investing activities
|
(301,000 | ) | (582,901 | ) | (302,268 | ) | ||||||
F-6
Table of Contents
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Borrowings on revolving credit facilities
|
749,065 | 900,050 | 939,400 | |||||||||
|
Repayments on revolving credit facilities
|
(949,726 | ) | (810,459 | ) | (779,400 | ) | ||||||
|
Repayment of debt assumed in merger
|
— | — | (601,970 | ) | ||||||||
|
Repayment of 2001A equipment lease notes
|
— | — | (137,123 | ) | ||||||||
|
Repayment of 2001B equipment lease notes
|
— | — | (257,750 | ) | ||||||||
|
Proceeds from issuance of term loan
|
— | — | 800,000 | |||||||||
|
Repayments on term loan
|
(20,000 | ) | — | — | ||||||||
|
Proceeds from Exterran asset-backed securitization facility
|
— | 100,000 | 800,000 | |||||||||
|
Repayments on Exterran asset-backed securitization facility
|
(330,000 | ) | — | — | ||||||||
|
Borrowings on Partnership credit facility
|
46,750 | 74,250 | 6,000 | |||||||||
|
Repayments on Partnership credit facility
|
(43,000 | ) | (10,000 | ) | — | |||||||
|
Borrowings on Partnership term loan
|
— | 117,500 | — | |||||||||
|
Borrowings on Partnership asset-backed securitization facility
|
30,000 | — | — | |||||||||
|
Repayment of senior notes
|
— | — | (550,000 | ) | ||||||||
|
Repayment on convertible senior notes due 2008
|
— | (192,000 | ) | — | ||||||||
|
Proceeds from issuance of convertible senior notes due 2014
|
355,000 | — | — | |||||||||
|
Payments for debt issue costs
|
(12,293 | ) | (682 | ) | (13,095 | ) | ||||||
|
Proceeds (repayments) of other debt, net
|
(59 | ) | (837 | ) | (5,009 | ) | ||||||
|
Proceeds from warrants sold
|
53,138 | — | — | |||||||||
|
Payment for call options
|
(89,408 | ) | — | — | ||||||||
|
Proceeds from stock options exercised
|
— | 5,150 | 27,271 | |||||||||
|
Proceeds from stock issued pursuant to our employee stock
purchase plan
|
2,845 | 4,113 | — | |||||||||
|
Purchases of treasury stock
|
(976 | ) | (100,961 | ) | (99,998 | ) | ||||||
|
Stock-based compensation excess tax benefit
|
119 | 14,763 | 10,737 | |||||||||
|
Distributions to noncontrolling partners in the Partnership
|
(15,459 | ) | (14,489 | ) | (3,336 | ) | ||||||
|
Net cash provided by (used in) financing activities
|
(224,004 | ) | 86,398 | 135,727 | ||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
7,325 | (10,447 | ) | 2,769 | ||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(40,161 | ) | (20,895 | ) | 74,940 | |||||||
|
Cash and cash equivalents at beginning of year
|
123,906 | 144,801 | 69,861 | |||||||||
|
Cash and cash equivalents at end of year
|
$ | 83,745 | $ | 123,906 | $ | 144,801 | ||||||
|
Supplemental disclosure of cash flow information:
|
||||||||||||
|
Interest paid, net of capitalized amounts
|
$ | 112,521 | $ | 133,823 | $ | 139,039 | ||||||
|
Income taxes paid, net
|
$ | 69,507 | $ | 48,658 | $ | 21,923 | ||||||
|
Supplemental disclosure of non-cash transactions:
|
||||||||||||
|
Conversion of debt to common stock
|
$ | — | $ | — | $ | 81,682 | ||||||
|
Conversion of Universal stock options to Exterran stock options
|
$ | — | $ | — | $ | 67,574 | ||||||
|
Common stock issued in the merger
|
$ | — | $ | — | $ | 2,003,525 | ||||||
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Background and Significant Accounting Policies |
Exterran Holdings, Inc., together with its subsidiaries
(“we,” “us,” “our,” or
“Exterran”), is a global market leader in the full
service natural gas compression business and a premier provider
of operations, maintenance, service and equipment for oil and
natural gas production, processing and transportation
applications. Our global customer base consists of companies
engaged in all aspects of the oil and natural gas industry,
including large integrated oil and natural gas companies,
national oil and natural gas companies, independent producers
and natural gas processors, gatherers and pipelines. We operate
in three primary business lines: contract operations,
fabrication and aftermarket services. In our contract operations
business line, we own a fleet of natural gas compression
equipment and crude oil and natural gas production and
processing equipment that we utilize to provide operations
services to our customers. In our fabrication business line, we
fabricate and sell equipment similar to the equipment that we
own and utilize to provide contract operations to our customers.
We also fabricate the equipment utilized in our contract
operations services. In addition, our fabrication business line
provides engineering, procurement and construction services
primarily related to the manufacturing of critical process
equipment for refinery and petrochemical facilities, the
construction of tank farms and the construction of evaporators
and brine heaters for desalination plants. In our Total
Solutions projects, which we offer to our customers on a
contract operations or on a sale basis, we provide the
engineering design, project management, procurement and
construction services necessary to incorporate our products into
complete production, processing and compression facilities. In
our aftermarket services business line, we sell parts and
components and provide operations, maintenance, overhaul and
reconfiguration services to customers who own compression,
production, processing, gas treating and other equipment.
We were incorporated on February 2, 2007 as Iliad Holdings,
Inc., a wholly-owned subsidiary of Universal Compression
Holdings, Inc. (“Universal”), and thereafter changed
our name to Exterran Holdings, Inc. On August 20, 2007, in
accordance with their merger agreement, Universal and Hanover
Compressor Company (“Hanover”) merged into our
wholly-owned subsidiaries, and we became the parent entity of
Universal and Hanover. Immediately following the completion of
the merger, Universal merged with and into us. Hanover was
determined to be the acquirer for accounting purposes and,
therefore, our financial statements reflect Hanover’s
historical results for periods prior to the merger date. We have
included the financial results of Universal’s operations in
our consolidated financial statements beginning August 20,
2007. References to “our,” “we” and
“us” refer to Hanover for periods prior to the merger
date and to Exterran for periods on or after the merger date.
As a result of the merger between Hanover and Universal, each
outstanding share of common stock of Universal was converted
into one share of Exterran common stock and each outstanding
share of Hanover common stock was converted into
0.325 shares of Exterran common stock. All share and per
share amounts in these consolidated financial statements and
related notes have been retroactively adjusted to reflect the
conversion ratio of Hanover common stock for all periods
presented.
Effective January 1, 2009, we adopted the requirements of
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 810,
“Consolidation” (“ASC 810”), which requires
that minority interests be recharacterized as noncontrolling
interests, requires them to be reported as a component of
equity, requires that purchases or sales of equity interests
that do not result in a change in control be accounted for as
equity transactions and, upon a loss of control, requires that
the interest sold, as well as any interest retained, be recorded
at fair value, with any gain or loss recognized in earnings. The
consolidated financial statements included in this Annual Report
on
Form 10-K
have been retrospectively adjusted to reflect the changes
required by ASC 810.
Principles
of Consolidation
The accompanying consolidated financial statements include
Exterran and its wholly-owned and majority-owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated in
F-8
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
consolidation. Investments in affiliated entities in which we
own more than a 20% interest and do not have a controlling
interest are accounted for using the equity method.
Use of
Estimates in the Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles (“GAAP”)
requires management to make estimates and assumptions that
affect the reported amount of assets, liabilities, revenues and
expenses, as well as the disclosures of contingent assets and
liabilities. Because of the inherent uncertainties in this
process, actual future results could differ from those expected
at the reporting date. Management believes that the estimates
and assumptions used are reasonable.
Cash
and Cash Equivalents
We consider all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Restricted
Cash
Restricted cash primarily consists of cash restricted for use to
pay for distributions and expenses incurred under our and
Exterran Partners, L.P.’s (together with its subsidiaries,
the “Partnership”) asset-backed securitization
facilities (see Note 11). Restricted cash is presented
separately from cash and cash equivalents in the balance sheet
and statement of cash flows.
Revenue
Recognition
Revenue from contract operations is recorded when earned, which
generally occurs monthly at the time the monthly service is
provided to customers in accordance with the contracts.
Aftermarket services revenue is recorded as products are
delivered and title is transferred or services are performed for
the customer.
Fabrication revenue is recognized using the
percentage-of-completion
method when the applicable criteria are met. We estimate
percentage-of-completion
for compressor and accessory fabrication on a direct labor hour
to total labor hour basis. Production and processing equipment
fabrication
percentage-of-completion
is estimated using the direct labor hour to total labor hour and
the cost to total cost basis. The duration of these projects is
typically between three and 36 months. Fabrication revenue
is recognized using the completed contract method when the
applicable criteria of the
percentage-of-completion
method are not met.
Concentrations
of Credit Risk
Financial instruments that potentially subject us to
concentrations of credit risk consist of cash and cash
equivalents, accounts receivable and notes receivable. We
believe that the credit risk in temporary cash investments is
limited because our cash is held in accounts with several
financial institutions. Trade accounts and notes receivable are
due from companies of varying size engaged principally in oil
and natural gas activities throughout the world. We review the
financial condition of customers prior to extending credit and
generally do not obtain collateral for trade receivables.
Payment terms are on a short-term basis and in accordance with
industry practice. We consider this credit risk to be limited
due to these companies’ financial resources, the nature of
products and the services we provide them and the terms of our
contract operations service contracts.
We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make
required payments. The determination of the collectibility of
amounts due from our customers requires us to use estimates and
make judgments regarding future events and trends, including
monitoring our customers’ payment history and current
credit worthiness to determine that collectibility is reasonably
assured, as well as consideration of the overall business
climate in which our customers operate.
F-9
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Inherently, these uncertainties require us to make judgments and
estimates regarding our customers’ ability to pay amounts
due us in order to determine the appropriate amount of valuation
allowances required for doubtful accounts. We review the
adequacy of our allowance for doubtful accounts quarterly. We
determine the allowance needed based on historical write-off
experience and by evaluating significant balances aged greater
than 90 days individually for collectibility. Account
balances are charged off against the allowance after all means
of collection have been exhausted and the potential for recovery
is considered remote. During 2009, 2008 and 2007, our bad debt
expense was $5.9 million, $4.0 million and
$2.2 million, respectively.
Inventory
Inventory consists of parts used for fabrication or maintenance
of natural gas compression equipment and facilities, processing
and production equipment, and also includes compression units
and production equipment that are held for sale. Inventory is
stated at the lower of cost or market using the average-cost
method. A reserve is recorded against inventory balances for
estimated obsolescence based on specific identification and
historical experience.
Property,
Plant and Equipment
Property, plant and equipment are recorded at cost and are
depreciated using the straight-line method over their estimated
useful lives as follows:
|
Compression equipment, facilities and other fleet assets
|
3 to 30 years | |
|
Buildings
|
20 to 35 years | |
|
Transportation, shop equipment and other
|
3 to 12 years |
Major improvements that extend the useful life of an asset are
capitalized. Repairs and maintenance are expensed as incurred.
When fleet units are sold, retired or otherwise disposed of, the
gain or loss is recorded in other (income) expense, net.
Interest is capitalized during the construction period on
equipment and facilities that are constructed for use in our
operations. The capitalized interest is included as part of the
cost of the asset to which it relates and is amortized over the
asset’s estimated useful life.
Computer
software
Certain costs related to the development or purchase of
internal-use software are capitalized and amortized over the
estimated useful life of the software, which ranges from three
to five years. Costs related to the preliminary project stage,
data conversion and the post-implementation/operation stage of
an internal-use computer software development project are
expensed as incurred.
Long-Lived
Assets
We review for the impairment of long-lived assets, including
property, plant and equipment and identifiable intangibles that
are being amortized whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. An impairment loss exists when estimated
undiscounted cash flows expected to result from the use of the
asset and its eventual disposition are less than its carrying
amount. The impairment loss recognized represents the excess of
the asset’s carrying value as compared to its estimated
fair value. Identifiable intangibles are amortized over the
assets’ estimated useful lives.
We hold investments in companies with operations in areas that
relate to our business. We record an investment impairment
charge when we believe an investment has experienced a decline
in value that is other than temporary.
F-10
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Goodwill
Goodwill is reviewed for impairment annually or whenever events
indicate impairment may have occurred.
Deferred
Revenue
Deferred revenue is primarily comprised of billings related to
jobs where revenue is recognized on the
percentage-of-completion
method that have not begun, milestone billings related to jobs
where revenue is recognized on the completed contract method and
deferred revenue on contract operations jobs.
Other
(Income) Expense, Net
Other (income) expense, net is primarily comprised of gains and
losses from foreign currency translation and on the sale of
assets.
Noncontrolling
Interest
Noncontrolling interest is primarily comprised of the portion of
the Partnership’s capital and earnings applicable to the
limited partner interest in the Partnership not owned by us.
Income
Taxes
We use the liability method for determining our income taxes,
under which current and deferred tax liabilities and assets are
recorded in accordance with enacted tax laws and rates. Under
this method, the amounts of deferred tax liabilities and assets
at the end of each period are determined using the tax rate
expected to be in effect when taxes are actually paid or
recovered. Future tax benefits are recognized to the extent that
realization of such benefits is more likely than not.
Deferred income taxes are provided for the estimated income tax
effect of temporary differences between financial and tax basis
in assets and liabilities. Deferred tax assets are also provided
for certain tax credit carryforwards. A valuation allowance to
reduce deferred tax assets is established when it is more likely
than not that some portion or all of the deferred tax assets
will not be realized. The impact of an uncertain tax position
taken or expected to be taken on an income tax return must be
recognized in the financial statements at the largest amount
that is more likely than not to be sustained upon examination by
the relevant taxing authority.
We operate in over 30 countries and, as a result, are subject to
the jurisdiction of numerous domestic and foreign tax
authorities. Our operations in these different jurisdictions are
taxed on various bases: actual income before taxes, deemed
profits (which are generally determined using a percentage of
revenues rather than profits) and withholding taxes based on
revenue. Determination of taxable income in any jurisdiction
requires the interpretation of the related tax laws and
regulations and the use of estimates and assumptions regarding
significant future events such as the amount, timing and
character of deductions, permissible revenue recognition methods
under the tax law and the sources and character of income and
tax credits. Changes in tax laws, regulations, agreements and
treaties, foreign currency exchange restrictions or our level of
operations or profitability in each taxing jurisdiction could
have an impact on the amount of income taxes that we provide
during any given year.
We intend to indefinitely reinvest certain earnings of our
foreign subsidiaries in operations outside the United States of
America (“U.S.”), and accordingly, we have not
provided for U.S. federal income taxes on such earnings. We
do provide for the U.S. and additional foreign taxes on
earnings anticipated to be repatriated from our foreign
subsidiaries.
F-11
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Foreign
Currency Translation
The financial statements of subsidiaries outside the U.S.,
except those for which we have determined that the
U.S. dollar is the functional currency, are measured using
the local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at the rates of
exchange in effect at the balance sheet date. Income and expense
items are translated at average monthly rates of exchange. The
resulting gains and losses from the translation of accounts into
U.S. dollars are included in accumulated other
comprehensive income (loss) on our consolidated balance sheets.
For all subsidiaries, gains and losses from remeasuring foreign
currency accounts into the functional currency are included in
other (income) expense, net on our consolidated statements of
operations.
Hedging
and Use of Derivative Instruments
We use derivative financial instruments to minimize the risks
and/or
costs
associated with financial activities by managing our exposure to
interest rate fluctuations on a portion of our debt obligations.
We also use derivative financial instruments to minimize the
risks caused by currency fluctuations in certain foreign
currencies. We do not use derivative financial instruments for
trading or other speculative purposes. We record interest rate
swaps and foreign currency hedges on the balance sheet as either
derivative assets or derivative liabilities measured at their
fair value. Fair value for our derivatives was estimated using a
combination of the market and income approach. Changes in the
fair value of the derivatives designated as cash flow hedges are
deferred in accumulated other comprehensive income (loss), net
of tax, to the extent the contracts are effective as hedges
until settlement of the underlying hedged transaction. To
qualify for hedge accounting treatment, we must formally
document, designate and assess the effectiveness of the
transactions. If the necessary correlation ceases to exist or if
the anticipated transaction becomes improbable, we would
discontinue hedge accounting and apply
mark-to-market
accounting. Amounts paid or received from interest rate swap
agreements are charged or credited to interest expense and
matched with the cash flows and interest expense of the debt
being hedged, resulting in an adjustment to the effective
interest rate. Amounts paid or received from foreign currency
derivatives designated as hedges are recorded against revenue
and matched with the revenue recognized on the related contract
being hedged.
Earnings
(Loss) Per Common Share
Basic income (loss) attributable to Exterran stockholders per
common share is computed by dividing income (loss) attributable
to Exterran common stockholders by the weighted average number
of shares outstanding for the period. Diluted income (loss)
attributable to Exterran stockholders per common share is
computed using the weighted average number of shares outstanding
adjusted for the incremental common stock equivalents attributed
to outstanding options and warrants to purchase common stock,
restricted stock, restricted stock units, stock issued pursuant
to our employee stock purchase plan and convertible senior
notes, unless their effect would be anti-dilutive.
The table below summarizes income (loss) attributable to
Exterran stockholders (in thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Loss from continuing operations
|
$ | (253,168 | ) | $ | (994,101 | ) | $ | (10,204 | ) | |||
|
Income (loss) from discontinued operations, net of tax
|
(296,239 | ) | 46,752 | 44,773 | ||||||||
|
Net income (loss) attributable to Exterran stockholders
|
$ | (549,407 | ) | $ | (947,349 | ) | $ | 34,569 | ||||
There were no potential shares of common stock included in
computing the dilutive potential shares of common stock used in
diluted income (loss) per common share for 2009, 2008, or 2007
as the effect would have been anti-dilutive. The table below
indicates the potential shares of common stock issuable that
were
F-12
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
excluded from net dilutive potential shares of common stock
issuable as their effect would have been anti-dilutive (in
thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Net dilutive potential common shares issuable:
|
||||||||||||
|
On exercise of options where exercise price is greater than
average market value for the period
|
1,140 | 556 | 14 | |||||||||
|
On exercise of options and vesting of restricted stock and
restricted stock units
|
539 | 576 | 464 | |||||||||
|
On settlement of employee stock purchase plan shares
|
30 | 16 | 2 | |||||||||
|
On conversion of convertible junior subordinated notes due 2029
|
— | — | 254 | |||||||||
|
On exercise of warrants
|
1,604 | — | — | |||||||||
|
On conversion of 4.25% convertible senior notes due 2014
|
8,762 | — | — | |||||||||
|
On conversion of 4.75% convertible senior notes due 2014
|
3,114 | 3,114 | 3,114 | |||||||||
|
On conversion of convertible senior notes due 2008
|
— | 299 | 1,420 | |||||||||
|
Net dilutive potential common shares issuable
|
15,189 | 4,561 | 5,268 | |||||||||
Comprehensive
Income (Loss)
Components of comprehensive income (loss) are net income (loss)
and all changes in equity during a period except those resulting
from transactions with owners. Our accumulated other
comprehensive income (loss) consists of foreign currency
translation adjustments and changes in the fair value of
derivative financial instruments, net of tax that are designated
as cash flow hedges, and to the extent the hedge is effective.
For the year ended December 31, 2009 we recorded an
increase in accumulated other comprehensive income (loss) of
$10.2 million, which is net of tax of $4.8 million, as
a result of the changes in the fair values of derivatives
designated as hedges.
Financial
Instruments
Our financial instruments include cash, restricted cash,
receivables, payables, interest rate swaps, foreign currency
hedges and debt. At December 31, 2009 and 2008, the
estimated fair value of such financial instruments, except for
debt, approximated their carrying value as reflected in our
consolidated balance sheets. As a result of the current credit
environment, we believe that the fair value of our floating rate
debt does not approximate its carrying value as of
December 31, 2009 and 2008 because the applicable margin on
our floating rate debt was below the market rates as of these
dates. The fair value of our fixed rate debt has been estimated
primarily based on quoted market prices. The fair value of our
floating rate debt has been estimated based on similar debt
transactions that occurred near December 31, 2009 and 2008.
A summary of the fair value and carrying value of our debt as of
December 31, 2009 and 2008 is shown in the table below (in
thousands):
| As of December 31, 2009 | As of December 31, 2008 | |||||||||||||||
|
Carrying
|
Carrying
|
|||||||||||||||
| Amount | Fair Value | Amount | Fair Value | |||||||||||||
|
Fixed rate debt
|
$ | 409,506 | $ | 423,696 | $ | 144,088 | $ | 88,018 | ||||||||
|
Floating rate debt
|
1,851,430 | 1,739,456 | 2,368,341 | 2,116,588 | ||||||||||||
|
Total debt
|
$ | 2,260,936 | $ | 2,163,152 | $ | 2,512,429 | $ | 2,204,606 | ||||||||
GAAP requires that all derivative instruments (including certain
derivative instruments embedded in other contracts) be
recognized in the balance sheet at fair value, and that changes
in such fair values be recognized in
F-13
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
earnings (loss) unless specific hedging criteria are met.
Changes in the values of derivatives that meet these hedging
criteria will ultimately offset related earnings effects of the
hedged item pending recognition in earnings.
Reclassifications
Certain amounts in the prior financial statements have been
reclassified to conform to the 2009 financial statement
classification. These reclassifications have no impact on our
consolidated results of operations, cash flows or financial
position.
| 2. | Discontinued Operations |
In May 2009, the Venezuelan government enacted a law that
reserves to the State of Venezuela certain assets and services
related to hydrocarbon primary activities, which included
substantially all of our assets and services in Venezuela. The
law provides that the reserved activities are to be performed by
the State, by the State-owned oil company, Petroleos de
Venezuela S.A. (“PDVSA”), or its affiliates, or
through mixed companies under the control of PDVSA or its
affiliates. The law authorizes PDVSA or its affiliates to take
possession of the assets and take over control of those
operations related to the reserved activities as a step prior to
the commencement of an expropriation process, and permits the
national executive of Venezuela to decree the total or partial
expropriation of shares or assets of companies performing those
services.
On June 2, 2009, PDVSA commenced taking possession of our
assets and operations in a number of our locations in Venezuela.
By the end of the second quarter of 2009, PDVSA had assumed
control over substantially all of our assets and operations in
Venezuela.
While the law provides that companies whose assets are
expropriated in this manner may be compensated in cash or
securities, we are unable to predict what, if any, compensation
Venezuela will ultimately offer in exchange for any such
expropriated assets and, accordingly, we are unable to predict
what, if any, compensation we ultimately will receive. We
reserve and will continue to reserve the right to seek full
compensation for any and all expropriated assets and investments
under all applicable legal regimes, including investment
treaties and customary international law. In this connection, on
June 16, 2009, we delivered to the Venezuelan government
and PDVSA an official notice of dispute relating to the seized
assets and investments under the Agreement between Spain and
Venezuela for the Reciprocal Promotion and Protection of
Investments and under Venezuelan law. We maintained insurance
for the risk of expropriation of our investments in Venezuela,
subject to a policy limit of $50 million. During the year
ended December 31, 2009, we recorded a receivable of
$50 million related to this insurance policy because we
determined that recovery under this policy of a portion of our
loss was probable. We collected the $50 million under our
policy in January 2010. Under the terms of the insurance policy,
certain compensation we may receive from the Venezuelan
government or PDVSA for our expropriated assets and operations
will be applied first to the reimbursement of out-of-pocket
expenses incurred by us and the insurance company, second to the
insurance company until the $50 million payment has been
repaid and third to us.
As a result of PDVSA taking possession of substantially all of
our assets and operations in Venezuela, we recorded asset
impairments during the year ended December 31, 2009,
totaling $329.7 million ($379.7 million excluding the
insurance proceeds of $50 million). These charges primarily
related to receivables, inventory, fixed assets and goodwill,
and is reflected in Income (loss) from discontinued operations.
These asset impairments are reflected as loss from discontinued
operations, net of tax in our consolidated statements of
operations. We believe the fair value of our seized Venezuelan
operations substantially exceeds the historical cost-based
carrying value of the assets, including the goodwill allocable
to those operations; however, GAAP
F-14
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
requires that our claim be accounted for as a gain contingency
with no benefit being recorded until resolved. Accordingly, we
did not include any compensation we may receive for our seized
assets and operations from Venezuela in recording the loss on
expropriation.
The expropriation of our business in Venezuela meets the
criteria established for recognition as discontinued operations
under ASC 205, “Presentation of Financial Statements.”
Therefore, our Venezuela contract operations and aftermarket
services businesses are now reflected as discontinued operations
in our consolidated statements of operations.
In January 2010, the Venezuelan government announced a
devaluation of the Venezuelan bolivar. We expect this
devaluation will result in a gain in discontinued operations as
the functional currency of our Venezuela subsidiary is the
U.S. dollar and we had more liabilities than assets
denominated in local currency in Venezuela as of
December 31, 2009. We had approximately $28 million of
net liabilities denominated in local currency in Venezuela as of
December 31, 2009. The exchange rate used to remeasure
these net liabilities changed from 2.15 bolivars per
U.S. dollar at December 31, 2009 to 4.3 bolivars per
U.S. dollar in January 2010.
The table below summarizes the operating results of the
discontinued operations (in thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Revenues
|
$ | 69,050 | $ | 154,535 | $ | 114,696 | ||||||
|
Expenses and selling, general and administrative
|
61,761 | 123,981 | 84,157 | |||||||||
|
Loss attributable to expropriation, net of insurance proceeds
|
329,685 | — | — | |||||||||
|
Other (income) expense, net
|
(7,571 | ) | (16,390 | ) | (24,637 | ) | ||||||
|
Provision for (benefit from) income taxes
|
(18,586 | ) | 192 | 10,403 | ||||||||
|
Income (loss) from discontinued operations, net of tax
|
$ | (296,239 | ) | $ | 46,752 | $ | 44,773 | |||||
F-15
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The table below summarizes the balance sheet data for
discontinued operations (in thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Cash
|
$ | 1,841 | $ | 2,485 | ||||
|
Accounts receivable
|
177 | 73,994 | ||||||
|
Political risk insurance receivable
|
50,000 | — | ||||||
|
Inventory
|
169 | 31,290 | ||||||
|
Other current assets
|
5,965 | 31,409 | ||||||
|
Total current assets associated with discontinued operations
|
58,152 | 139,178 | ||||||
|
Property, plant and equipment, net
|
386 | 237,644 | ||||||
|
Goodwill, net
|
— | 32,602 | ||||||
|
Intangibles and other long-term assets
|
— | 4,820 | ||||||
|
Total assets associated with discontinued operations
|
$ | 58,538 | $ | 414,244 | ||||
|
Accounts payable
|
$ | 9,543 | $ | 7,467 | ||||
|
Accrued liabilities
|
12,336 | 25,115 | ||||||
|
Deferred revenues
|
— | 5,050 | ||||||
|
Total current liabilities associated with discontinued operations
|
21,879 | 37,632 | ||||||
|
Deferred income taxes
|
— | 28,273 | ||||||
|
Other long-term liabilities
|
16,667 | 26,524 | ||||||
|
Total liabilities associated with discontinued operations
|
$ | 38,546 | $ | 92,429 | ||||
| 3. | Business Acquisitions |
In January 2007, Universal acquired B.T.I. Holdings Pte Ltd
(“B.T.I.”) and its wholly-owned subsidiary
B.T. Engineering Pte Ltd, a Singapore based fabricator
of oil and natural gas, petrochemical, marine and offshore
equipment, including pressure vessels, floating, production,
storage and offloading process modules, terminal buoys, turrets,
natural gas compression units and related equipment. As a result
of the acquisition, we had contingent payment obligations and
during 2009 we paid contingent purchase price payments of
$17.9 million. As of December 31, 2009, we have
accrued $1.0 million for the final contingent purchase
price amount.
On August 20, 2007, pursuant to the merger agreement dated
as of February 5, 2007, as amended, by and among us,
Hanover, Universal, Hector Sub, Inc., a Delaware corporation and
our wholly-owned subsidiary, and Ulysses Sub, Inc., a Delaware
corporation and our wholly-owned subsidiary, Ulysses Sub, Inc.
merged with and into Universal and Hector Sub, Inc. merged with
and into Hanover. As a result of the merger, each of Universal
and Hanover became our wholly-owned subsidiary. Immediately
following the completion of the merger, Universal merged with
and into us.
As a result of the merger, each outstanding share of common
stock of Universal was converted into one share of Exterran
common stock, which resulted in the issuance of approximately
30.3 million shares of Exterran common stock. Additionally,
each outstanding share of Hanover common stock was converted
into 0.325 shares of common stock of Exterran, which
resulted in the issuance of approximately 35.6 million
shares of Exterran common stock. Exterran’s common stock
began trading on the New York Stock Exchange under the symbol
“EXH” on August 21, 2007, concurrent with the
cessation of the trading of Hanover and Universal common stock.
The merger has been accounted for as a purchase business
combination. We determined that Hanover was the acquirer for
accounting purposes and therefore our financial statements
F-16
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
reflect Hanover’s historical results for periods prior to
the merger date. We have included the financial results of
Universal in our consolidated financial statements beginning
August 20, 2007.
The completion of the merger resulted in the acceleration of
vesting of certain long-term incentive awards held by Hanover
employees, including executive officers. On the merger date of
August 20, 2007, there was approximately $13.1 million
of unrecognized compensation expense related to restricted
stock, stock options and cash incentive awards that were subject
to acceleration of vesting and were expensed upon completion of
the merger. Additionally, we recorded a charge on the merger
date of approximately $8.4 million related to executives
with change of control agreements who were entitled to payments
under those agreements as a result of the merger.
During 2008 and 2007, merger and integration expenses related to
the merger between Hanover and Universal were primarily
comprised of acceleration of vesting of restricted stock, stock
options and long-term cash incentives; professional fees;
amortization of retention bonus awards; and change of control
payments and severance for employees. Prior to the completion of
the merger, the boards of directors of each of Hanover and
Universal adopted a retention bonus plan of up to
$10 million for each company. These plans provided for
awards to certain key employees if such individuals remained
employed by Exterran through a specific date or dates in 2008,
or were terminated without cause prior to such dates.
Unaudited
Pro Forma Financial Information
The unaudited financial information in the table below
summarizes the combined results of operations of Hanover and
Universal, on a pro forma basis, as though the companies had
been combined as of the beginning of the period presented. The
unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of
the results of operations that would have occurred had the
transaction been consummated at the beginning of the period
presented, nor is it necessarily indicative of future results.
The pro forma information for 2007 excludes non-recurring items
related to merger and integration expenses. The pro forma
information for 2007 includes $77.1 million of debt
extinguishment related charges and $61.9 million of fleet
impairment charges incurred in the third quarter of 2007, as
discussed in Notes 11 and 14, respectively, below. The
pro forma amounts represent the historical operating results of
Hanover and Universal with adjustments for purchase accounting
expenses and to conform accounting policies that affect
revenues, cost of sales, selling, general and administrative
expenses, depreciation and amortization, interest expense, other
income (expense), net and income taxes (in thousands, except per
share amounts):
|
Year Ended
|
||||
| December 31, 2007 | ||||
|
Total revenues from continuing operations
|
$ | 3,175,576 | ||
|
Net income from continuing operations
|
$ | 70,996 | ||
|
Basic income from continuing operations per common share
|
$ | 1.10 | ||
|
Diluted income from continuing operations per common share
|
$ | 1.08 | ||
In January 2008, we acquired GLR Solutions Ltd.
(“GLR”), a Canadian provider of water treatment
products for the upstream petroleum and other industries, for
approximately $25 million plus certain working capital
adjustments and contingent payments based on the performance of
GLR. In April 2009, we paid approximately $3.6 million
Canadian based on GLR’s performance for the year ended
December 31, 2008 and we may be required to pay up to an
additional $18.4 million Canadian based on GLR’s
performance in 2009 and 2010. Under the purchase method of
accounting, the total purchase price was allocated to GLR’s
net tangible and intangible assets based on their estimated fair
value at the purchase date. This allocation resulted in goodwill
and intangible assets of $14.7 million and
$15.3 million, respectively. The intangible assets for
customer relationships and patents are being amortized through
2027 based on the present value of expected
F-17
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
income to be realized from these assets. The intangible assets
for non-compete agreements and backlog are being amortized over
five years and one year, respectively. The goodwill and
intangible assets from this acquisition are not deductible for
Canadian income tax purposes.
In July 2008, we acquired EMIT Water Discharge Technology, LLC
(“EMIT”), a leading provider of contract water
management and processing services, primarily to the coalbed
methane industry, for approximately $108.6 million. Under
the purchase method of accounting, the total purchase price was
allocated to EMIT’s net tangible and intangible assets
based on their estimated fair value at the purchase date. This
allocation resulted in goodwill and intangible assets of
$45.8 million and $41.7 million, respectively.
Goodwill associated with this acquisition was written off in
2008 in connection with the goodwill impairment of our North
America contract operations business. The intangible assets for
contracts and customer relationships are being amortized through
2017 and 2019, respectively, based on the present value of
expected income to be realized from these assets. The intangible
assets for non-compete agreements and technology will be
amortized through 2013 and 2027, respectively. The goodwill and
intangible assets from this acquisition are deductible for
U.S. federal income tax purposes.
| 4. | Inventory |
Inventory, net of reserves, consisted of the following amounts
(in thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Parts and supplies
|
$ | 284,849 | $ | 290,858 | ||||
|
Work in progress
|
154,763 | 187,579 | ||||||
|
Finished goods
|
50,370 | 17,372 | ||||||
|
Inventory, net of reserves
|
$ | 489,982 | $ | 495,809 | ||||
During 2009, 2008 and 2007, we recorded $5.3 million,
$2.1 million and $0.7 million, respectively, in
inventory write-downs and reserves for inventory, which were
either obsolete, excess or carried at a price above market
value. As of December 31, 2009 and 2008, we had inventory
reserves of $18.4 million and $16.3 million,
respectively.
| 5. | Fabrication Contracts |
Costs, estimated earnings and billings on uncompleted contracts
consisted of the following (in thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Costs incurred on uncompleted contracts
|
$ | 1,220,266 | $ | 1,522,102 | ||||
|
Estimated earnings
|
288,460 | 282,238 | ||||||
| 1,508,726 | 1,804,340 | |||||||
|
Less — billings to date
|
(1,484,790 | ) | (1,742,808 | ) | ||||
| $ | 23,936 | $ | 61,532 | |||||
F-18
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Costs, estimated earnings and billings on uncompleted contracts
are presented in the accompanying financial statements as
follows (in thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Costs and estimated earnings in excess of billings on
uncompleted contracts
|
$ | 180,181 | $ | 219,487 | ||||
|
Billings on uncompleted contracts in excess of costs and
estimated earnings
|
(156,245 | ) | (157,955 | ) | ||||
| $ | 23,936 | $ | 61,532 | |||||
| 6. | Property, Plant and Equipment |
Property, plant and equipment consisted of the following (in
thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Compression equipment, facilities and other fleet assets
|
$ | 4,355,915 | $ | 4,314,566 | ||||
|
Land and buildings
|
174,004 | 175,204 | ||||||
|
Transportation and shop equipment
|
207,035 | 182,402 | ||||||
|
Other
|
125,435 | 108,170 | ||||||
| 4,862,389 | 4,780,342 | |||||||
|
Accumulated depreciation
|
(1,458,035 | ) | (1,344,120 | ) | ||||
|
Property, plant and equipment, net
|
$ | 3,404,354 | $ | 3,436,222 | ||||
Depreciation expense was $322.3 million,
$293.4 million and $216.3 million in 2009, 2008 and
2007, respectively. Assets under construction of
$201.5 million and $214.2 million are included in
compression equipment, facilities and other fleet assets at
December 31, 2009 and 2008, respectively. We capitalized
$4.1 million, $0.3 million and $1.2 million of
interest related to construction in process during 2009, 2008
and 2007, respectively.
| 7. | Intangible and Other Assets |
Intangible and other assets consisted of the following (in
thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Deferred debt issuance and leasing transactions costs, net
|
$ | 18,004 | $ | 13,993 | ||||
|
Notes and other receivables
|
490 | 3,750 | ||||||
|
Intangible assets, net
|
184,750 | 216,590 | ||||||
|
Deferred taxes
|
34,290 | 35,768 | ||||||
|
Other
|
36,349 | 24,151 | ||||||
|
Intangibles and other assets, net
|
$ | 273,883 | $ | 294,252 | ||||
Notes receivable result primarily from customers for sales of
equipment or advances to other parties in the ordinary course of
business.
F-19
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Intangible assets and deferred debt issuance costs consisted of
the following (in thousands):
| December 31, 2009 | December 31, 2008 | |||||||||||||||
|
Gross
|
Gross
|
|||||||||||||||
|
Carrying
|
Accumulated
|
Carrying
|
Accumulated
|
|||||||||||||
| Amount | Amortization | Amount | Amortization | |||||||||||||
|
Deferred debt issuance costs
|
$ | 28,087 | $ | (10,083 | ) | $ | 20,541 | $ | (6,548 | ) | ||||||
|
Marketing related (20 year life)
|
715 | (270 | ) | 750 | (115 | ) | ||||||||||
|
Customer related
(11-20 year
life)
|
171,638 | (40,634 | ) | 172,012 | (21,640 | ) | ||||||||||
|
Technology based (20 year life)
|
32,156 | (3,045 | ) | 32,360 | (1,212 | ) | ||||||||||
|
Contract based (2-11 year life)
|
64,164 | (39,974 | ) | 65,632 | (31,197 | ) | ||||||||||
|
Intangible assets and deferred debt issuance costs
|
$ | 296,760 | $ | (94,006 | ) | $ | 291,295 | $ | (60,712 | ) | ||||||
Amortization of deferred debt issuance costs totaled
$3.9 million, $3.4 million and $4.7 million in
2009, 2008 and 2007, respectively, and are recorded to interest
expense in our consolidated statements of operations.
Amortization of intangible costs totaled $30.5 million,
$37.5 million and $16.2 million in 2009, 2008 and
2007, respectively. Customer related intangible assets acquired
in connection with the merger are being amortized based upon the
expected cash flows over a
17-year
period. Deferred financing costs of $16.4 million were
written off in conjunction with the refinancing completed during
the third quarter of 2007 and recorded to debt extinguishment
costs in our consolidated statements of operations.
Estimated future intangible and deferred debt issuance cost
amortization expense is as follows (in thousands):
|
2010
|
$ | 32,355 | ||
|
2011
|
28,800 | |||
|
2012
|
25,011 | |||
|
2013
|
20,111 | |||
|
2014
|
15,753 | |||
|
Thereafter
|
80,724 | |||
| $ | 202,754 | |||
| 8. | Investments in Non-Consolidated Affiliates |
Investments in affiliates that are not controlled by Exterran
but where we have the ability to exercise significant influence
over the operations are accounted for using the equity method.
Our share of net income or losses of these affiliates is
reflected in the consolidated statements of operations as equity
in (income) loss of non-consolidated affiliates. Our primary
equity method investments have been primarily comprised of
entities that own, operate, service and maintain compression and
other related facilities, as well as water injection plants.
Our ownership interest and location of each equity method
investee at December 31, 2009 is as follows:
|
Ownership
|
||||||||||
|
|
Interest | Location | Type of Business | |||||||
|
PIGAP II
|
30.0 | % | Venezuela | Gas Compression Plant | ||||||
|
El Furrial
|
33.3 | % | Venezuela | Gas Compression Plant | ||||||
We also had a 35.5% ownership interest in each of the SIMCO
Consortium and Harwat that we sold in November 2009. The SIMCO
Consortium and Harwat operate a water injection plant in
Venezuela. The
F-20
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
summarized financial information in the tables below include the
investees listed above as well as the SIMCO Consortium and
Harwat through their disposition date in November 2009.
Summarized balance sheet information for investees accounted for
by the equity method is as follows (on a 100% basis, in
thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Current assets
|
$ | 2,271 | $ | 219,518 | ||||
|
Non-current assets
|
24,767 | 403,162 | ||||||
|
Current liabilities, including current debt
|
147,541 | 259,396 | ||||||
|
Long-term debt payable
|
1,846 | 28,063 | ||||||
|
Other non-current liabilities
|
28,947 | 136,760 | ||||||
|
Owners’ equity (deficit)
|
(151,296 | ) | 198,460 | |||||
Summarized combined earnings information for these entities
consisted of the following amounts (on a 100% basis, in
thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Revenues
|
$ | 8,381 | $ | 208,148 | $ | 192,923 | ||||||
|
Operating income (loss)
|
(400,727 | ) | 104,543 | 91,718 | ||||||||
|
Net income (loss)
|
(343,680 | ) | 46,922 | 29,683 | ||||||||
Due to unresolved disputes with its only customer, PDVSA, SIMCO
sent a notice to PDVSA in the fourth quarter of 2008 stating
that SIMCO might not be able to continue to fund its operations
if some of its outstanding disputes were not resolved and paid
in the near future. On February 25, 2009, the Venezuelan
National Guard occupied SIMCO’s facilities and during March
transitioned the operation of SIMCO, including the hiring of
SIMCO’s employees, to PDVSA.
During the third quarter of 2007, we determined that the
financial condition and near and long-term prospects of our
investment in the SIMCO Consortium and Harwat had declined and
that we had a loss in our investment that was not temporary.
This decline was primarily caused by increased costs to operate
their business that were not expected to improve in the near
term. In the third quarter of 2007, we recorded an impairment of
our investment in the SIMCO Consortium and Harwat of
$6.7 million, which is reflected as a charge in equity in
income (loss) of non-consolidated affiliates in our consolidated
statements of operations.
During the first quarter of 2009, we determined that the
expected proceeds from our investment in the SIMCO Consortium
and Harwat would be less than the book value of our investment
and, as a result, that the fair value of our investment had
declined and the loss in value was not temporary. Therefore, we
recorded an impairment charge in the first quarter of 2009 of
$6.5 million, which is reflected as a charge in equity in
(income) loss of non-consolidated affiliates in our consolidated
statements of operations.
Due to lack of payments from their only customer, PDVSA, PIGAP
II and El Furrial each sent a notice of default to PDVSA in
April 2009. PIGAP II’s and El Furrial’s debt was in
technical default triggered by past due payments from their sole
customer under their related services contracts. As a result of
PDVSA’s nonpayment, in March 2009 these joint ventures
recorded impairments on their assets. Accordingly, we reviewed
our expected cash flows related to these two joint ventures and
determined in March 2009 that the fair value of our investment
in PIGAP II and El Furrial had declined and that we had a loss
in our investment that was not temporary. Therefore, we recorded
an impairment charge of $90.1 million ($81.7 million
net of tax) to write-off our investments in PIGAP II and El
Furrial. These impairment charges are reflected as a charge in
equity in (income) loss of non-consolidated affiliates in our
consolidated statements of operations. In
F-21
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
May 2009, PDVSA assumed control over the assets of PIGAP II and
El Furrial and transitioned the operations of PIGAP II and El
Furrial, including the hiring of their employees, to PDVSA. Our
non-consolidated affiliates are expected to seek full
compensation for any and all expropriated assets and investments
under all applicable legal regimes, including investment
treaties and customary international law, which could result in
us recording a gain on our investment in future periods.
However, we are unable to predict what, if any, compensation we
ultimately will receive.
Because the assets and operations of our investments in our
remaining non-consolidated affiliates have been expropriated, we
currently do not expect to have significant, if any, equity
earnings in non-consolidated affiliates in the future from these
investments.
During 2009, 2008 and 2007, we received approximately zero,
$3.7 million and $8.5 million, respectively, in
dividends from our joint ventures. At December 31, 2009 and
2008, we had cumulatively recognized approximately zero and
$14.4 million, respectively, of earnings, net of tax, in
excess of distributions from these joint ventures.
| 9. | Goodwill |
Goodwill acquired in connection with business combinations
represents the excess of consideration over the fair value of
tangible and identifiable intangible net assets acquired.
Certain assumptions and estimates are employed in determining
the fair value of assets acquired and liabilities assumed, as
well as in determining the allocation of goodwill to the
appropriate reporting units.
We perform our goodwill impairment test in the fourth quarter of
every year, or whenever events indicate impairment may have
occurred, to determine if the estimated recoverable value of
each of our reporting units exceeds the net carrying value of
the reporting unit, including the applicable goodwill.
The first step in performing a goodwill impairment test is to
compare the estimated fair value of each reporting unit with its
recorded net book value (including the goodwill). If the
estimated fair value of the reporting unit is higher than the
recorded net book value, no impairment is deemed to exist and no
further testing is required. If, however, the estimated fair
value of the reporting unit is below the recorded net book
value, then a second step must be performed to determine the
goodwill impairment required, if any. In this second step, the
estimated fair value from the first step is used as the purchase
price in a hypothetical acquisition of the reporting unit.
Purchase business combination accounting rules are followed to
determine a hypothetical purchase price allocation to the
reporting unit’s assets and liabilities. The residual
amount of goodwill that results from this hypothetical purchase
price allocation is compared to the recorded amount of goodwill
for the reporting unit, and the recorded amount is written down
to the hypothetical amount, if lower.
Because quoted market prices for our reporting units are not
available, management must apply judgment in determining the
estimated fair value of these reporting units for purposes of
performing the annual goodwill impairment test. Management uses
all available information to make these fair value
determinations, including the present values of expected future
cash flows using discount rates commensurate with the risks
involved in the assets.
We determine the fair value of our reporting units using a
combination of the expected present value of future cash flows
and a market approach. Each approach is weighted 50% in
determining our calculated fair value. The present value of
future cash flows is estimated using our most recent forecast
and the weighted average cost of capital. The market approach
uses a market multiple on the reporting units’ earnings
before interest, tax, depreciation and amortization.
As discussed in Note 2, on June 2, 2009, PDVSA
commenced taking possession of our assets and operations in
Venezuela. By the end of the second quarter of 2009, PDVSA had
assumed control over substantially all of our assets and
operations in Venezuela. We determined that this event could
indicate an impairment of our
F-22
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
international contract operations and aftermarket services
reporting units’ goodwill and therefore performed a
goodwill impairment test for these reporting units in the second
quarter of 2009.
Our international contract operations reporting unit failed the
goodwill impairment test and we recorded an impairment of
goodwill in our international contract operations reporting unit
of $150.8 million in the second quarter of 2009. The
$32.6 million of goodwill related to our Venezuela contract
operations and aftermarket services businesses was also written
off in the second quarter of 2009 as part of our loss from
discontinued operations. The decrease in value of our
international contract operations reporting unit was primarily
caused by the loss of our operations in Venezuela.
In 2008, there were severe disruptions in the credit and capital
markets and reductions in global economic activity which had
significant adverse impacts on stock markets and
oil-and-gas-related
commodity prices, both of which we believe contributed to a
significant decline in our stock price and corresponding market
capitalization. We determined that the deepening recession and
financial market crisis, along with the continuing decline in
the market value of our common stock resulted in an impairment
of all of the goodwill in our North America contract operations
reporting unit. These factors impacted our estimated weighted
average cost of capital and multiples used in determining the
fair value of our reporting units in 2008.
Our North America contract operations reporting unit failed the
goodwill impairment test and we recorded an impairment of
goodwill in our North America contract operations reporting unit
of $1,148.4 million in 2008. All of our other reporting
units passed the goodwill impairment test. If for any reason the
fair value of our goodwill or that of any of our reporting units
declines below the carrying value in the future, we may incur
additional goodwill impairment charges.
F-23
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The table below presents the change in the net carrying amount
of goodwill for the years ended December 31, 2009 and 2008
(in thousands):
|
North America
|
International
|
|||||||||||||||||||
|
contract
|
contract
|
Aftermarket
|
||||||||||||||||||
| operations | operations | services | Fabrication | Total | ||||||||||||||||
|
Balance as of December 31, 2007:
|
||||||||||||||||||||
|
Goodwill
|
$ | 1,114,181 | $ | 145,053 | $ | 65,272 | $ | 186,342 | $ | 1,510,848 | ||||||||||
|
Accumulated impairment losses
|
— | — | — | (87,569 | ) | (87,569 | ) | |||||||||||||
| 1,114,181 | 145,053 | 65,272 | 98,773 | 1,423,279 | ||||||||||||||||
|
Goodwill acquired during year
|
45,839 | — | — | 14,747 | 60,586 | |||||||||||||||
|
Impairment losses
|
(1,148,371 | ) | — | — | — | (1,148,371 | ) | |||||||||||||
|
Impact of foreign currency Translation
|
(6,020 | ) | (8,476 | ) | (5,091 | ) | (3,258 | ) | (22,845 | ) | ||||||||||
|
Purchase adjustments
|
(5,629 | ) | 6,332 | 187 | (5,515 | ) | (4,625 | ) | ||||||||||||
|
Balance as of December 31, 2008:
|
||||||||||||||||||||
|
Goodwill
|
1,148,371 | 142,909 | 60,368 | 192,316 | 1,543,964 | |||||||||||||||
|
Accumulated impairment losses
|
(1,148,371 | ) | — | — | (87,569 | ) | (1,235,940 | ) | ||||||||||||
| — | 142,909 | 60,368 | 104,747 | 308,024 | ||||||||||||||||
|
Impairment losses
|
— | (150,778 | ) | — | — | (150,778 | ) | |||||||||||||
|
Dispositions
|
— | — | (1,528 | ) | — | (1,528 | ) | |||||||||||||
|
Impact of foreign currency Translation
|
— | 7,869 | 3,631 | 8,824 | 20,324 | |||||||||||||||
|
Purchase adjustments
|
— | — | — | 19,122 | 19,122 | |||||||||||||||
|
Balance as of December 31, 2009:
|
||||||||||||||||||||
|
Goodwill
|
1,148,371 | 150,778 | 62,471 | 220,262 | 1,581,882 | |||||||||||||||
|
Accumulated impairment losses
|
(1,148,371 | ) | (150,778 | ) | — | (87,569 | ) | (1,386,718 | ) | |||||||||||
| $ | — | $ | — | $ | 62,471 | $ | 132,693 | $ | 195,164 | |||||||||||
| 10. | Accrued Liabilities |
Accrued liabilities consisted of the following (in thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Accrued salaries and other benefits
|
$ | 60,950 | $ | 73,783 | ||||
|
Accrued income and other taxes
|
119,683 | 128,115 | ||||||
|
Accrued warranty expense
|
4,393 | 6,535 | ||||||
|
Accrued interest
|
8,377 | 7,834 | ||||||
|
Accrued other liabilities
|
79,588 | 65,579 | ||||||
|
Interest rate swaps fair value
|
48,421 | 30,424 | ||||||
|
Accrued liabilities
|
$ | 321,412 | $ | 312,270 | ||||
F-24
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 11. |
|
Long-term debt consisted of the following (in thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Revolving credit facility due August 2012
|
$ | 68,929 | $ | 269,591 | ||||
|
Term loan
|
780,000 | 800,000 | ||||||
|
2007 asset-backed securitization facility notes due July 2012
|
570,000 | 900,000 | ||||||
|
Partnership’s revolving credit facility due October 2011
|
285,000 | 281,250 | ||||||
|
Partnership’s term loan facility due October 2011
|
117,500 | 117,500 | ||||||
|
Partnership’s asset-backed securitization facility notes
due July 2013
|
30,000 | — | ||||||
|
4.25% convertible senior notes due June 2014 (presented net of
the unamortized discount of $89.5 million as of
December 31, 2009)
|
265,469 | — | ||||||
|
4.75% convertible senior notes due January 2014
|
143,750 | 143,750 | ||||||
|
Other, interest at various rates, collateralized by equipment
and other assets
|
288 | 338 | ||||||
| 2,260,936 | 2,512,429 | |||||||
|
Less current maturities
|
— | (101 | ) | |||||
|
Long-term debt
|
$ | 2,260,936 | $ | 2,512,328 | ||||
Exterran
Senior Secured Credit Facility
On August 20, 2007, we entered into a senior secured credit
agreement (the “Credit Agreement”) with various
financial institutions. The Credit Agreement consists of
(a) a five-year revolving credit facility in the aggregate
amount of $850 million, which includes a variable
allocation for a Canadian tranche and the ability to issue
letters of credit under the facility and (b) a six-year
term loan senior secured credit facility, in the aggregate
amount of $800 million with principal payments due on
multiple dates through June 2013 (collectively, the “Credit
Facility”). Subject to certain conditions as of
December 31, 2009, at our request and with the approval of
the lenders, the aggregate commitments under the Credit Facility
may be increased by an additional $400 million less certain
adjustments.
As of December 31, 2009, we had $68.9 million in
outstanding borrowings and $303.5 million in letters of
credit outstanding under our revolving credit facility and
$780.0 million in outstanding borrowings under our term
loan senior secured credit facility. Additional borrowings of up
to approximately $477.6 million were available under the
revolving credit facility as of December 31, 2009.
The Credit Agreement bears interest, if the borrowings are in
U.S. dollars, at LIBOR or a base rate, at our option, plus
an applicable margin or, if the borrowings are in Canadian
dollars, at U.S. dollar LIBOR, U.S. dollar base rate
or Canadian prime rate, at our option, plus the applicable
margin or the Canadian dollar bankers’ acceptance rate. The
base rate is the higher of the U.S. Prime Rate or the
Federal Funds Rate plus 0.5%. The applicable margin varies
depending on the debt ratings of our senior secured indebtedness
(i) in the case of LIBOR loans, from 0.65% to 1.75% or
(ii) in the case of base rate or Canadian prime rate loans,
from 0.0% to 0.75%. At December 31, 2009, all amounts
outstanding were LIBOR loans and the applicable margin was
0.825%. The weighted average interest rate at December 31,
2009 on the outstanding balance, excluding the effect of
interest rate swaps, was 1.1%.
The Credit Agreement contains various covenants with which we
must comply, including, but not limited to, limitations on
incurrence of indebtedness, investments, liens on assets,
transactions with affiliates, mergers, consolidations, sales of
assets and other provisions customary in similar types of
agreements. We must also
F-25
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
maintain, on a consolidated basis, required leverage and
interest coverage ratios. Additionally, the Credit Agreement
contains customary conditions, representations and warranties,
events of default and indemnification provisions. Our
indebtedness under the Credit Facility is collateralized by
liens on substantially all of our personal property in the
U.S. The assets of the Partnership and our wholly-owned
subsidiary, Exterran ABS 2007 LLC (along with its subsidiary,
“Exterran ABS”), are not collateral under the Credit
Agreement. Exterran Canada, Limited Partnership’s
indebtedness under the Credit Facility is collateralized by
liens on substantially all of its personal property in Canada.
We have executed a U.S. Pledge Agreement pursuant to which
we and our Significant Subsidiaries (as defined in the Credit
Agreement) are required to pledge our equity and the equity of
certain subsidiaries. The Partnership and Exterran ABS are not
pledged under this agreement and do not guarantee debt under the
Credit Facility.
Exterran
Asset-Backed Securitization Facility
In August 2007, Exterran ABS entered into a $1.0 billion
asset-backed securitization facility (the “2007 ABS
Facility”), which was reduced to an $800 million
facility in October 2009 concurrent with the closing of the
Partnership’s asset-backed securitization facility, as
described below. The amount outstanding at any time is limited
to the lower of (i) 80% of the value of the natural gas
compression equipment owned by Exterran ABS and its subsidiaries
(as defined in the agreement), (ii) 4.5 times free cash
flow or (iii) the amount calculated under an interest
coverage test. Based on these tests, the limit on the amount
outstanding can be increased or decreased in future periods. The
related indenture contains customary terms and conditions with
respect to an issuance of asset-backed securities, including
representations and warranties, covenants and events of default.
As of December 31, 2009, we had $570.0 million in
outstanding borrowings under the 2007 ABS Facility and
$230.0 million of unfunded commitments. As of
December 31, 2009, due to certain covenant limitations
under the facility, only approximately $58.2 million of the
$230.0 million in unfunded commitments could have been
available for additional borrowings, if such facility were fully
funded with all eligible contract compression assets available
at that time. If our operations within Exterran ABS experience
additional reductions in cash flows, the amount available for
additional borrowings could be further reduced. If the
outstanding borrowings exceed the amount allowed based on the
limitations, we can utilize either certain cash flows from
Exterran ABS’s operations or borrowings under our revolving
credit facility, or a combination of both, to reduce the amount
of borrowings outstanding to the amount allowed pursuant to the
limitations. Interest and fees payable to the noteholders accrue
on these notes at a variable rate consisting of one month LIBOR
plus an applicable margin of 0.825%. The weighted average
interest rate at December 31, 2009 on borrowings under the
2007 ABS Facility, excluding the effect of interest rate swaps,
was 1.1%. The 2007 ABS Facility is revolving in nature and is
payable in July 2012.
Repayment of the 2007 ABS Facility notes has been secured by a
pledge of all of the assets of Exterran ABS, consisting
primarily of specified compression services contracts and a
fleet of natural gas compressors. Under the 2007 ABS Facility,
we had $12.9 million of restricted cash as of
December 31, 2009.
The
Partnership Revolving Credit Facility and Term Loan
The Partnership, as guarantor, and EXLP Operating LLC, a
wholly-owned subsidiary of the Partnership (together with the
Partnership, the “Partnership Borrowers”), are parties
to a senior secured credit agreement (the “Partnership
Credit Agreement”) that provides for a five-year,
$315 million revolving credit facility that matures in
October 2011. As of December 31, 2009, there was
$285.0 million in outstanding borrowings under the
revolving credit facility and $30.0 million was available
for additional borrowings.
The Partnership’s revolving credit facility bears interest
at a base rate or LIBOR, at the Partnership’s option, plus
an applicable margin. The applicable margin, depending on its
leverage ratio, varies (i) in the case of LIBOR loans, from
1.0% to 2.0% or (ii) in the case of base rate loans, from
0.0% to 1.0%. The base rate is the higher of the U.S. Prime
Rate or the Federal Funds Rate plus 0.5%. At December 31,
2009 all amounts
F-26
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EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
outstanding were LIBOR loans and the applicable margin was
1.75%. The weighted average interest rate on the outstanding
balance of the Partnership’s revolving credit facility, at
December 31, 2009, excluding the effect of interest rate
swaps, was 2.1%.
In May 2008, the Partnership Borrowers entered into an amendment
to the Partnership Credit Agreement that increased the aggregate
commitments under that facility to provide for a
$117.5 million term loan facility. The $117.5 million
term loan was funded during July 2008 and $58.3 million was
drawn on the Partnership’s revolving credit facility, which
together were used to repay the debt assumed by the Partnership
concurrent with the closing of the acquisition by the
Partnership from us of certain contract compression assets and
to pay other costs incurred. The $117.5 million term loan
is
non-amortizing
but must be repaid with the net cash proceeds from any equity
offerings of the Partnership until paid in full.
The term loan bears interest at a base rate or LIBOR, at the
Partnership’s option, plus an applicable margin. The
applicable margin, depending on its leverage ratio, varies
(i) in the case of LIBOR loans, from 1.5% to 2.5% or
(ii) in the case of base rate loans, from 0.5% to 1.5%.
Borrowings under the term loan are subject to the same credit
agreement and covenants as the Partnership’s revolving
credit facility, except for an additional covenant requiring
mandatory prepayment of the term loan from net cash proceeds of
any future equity offerings of the Partnership, on a
dollar-for-dollar
basis. At December 31, 2009, all amounts outstanding were
LIBOR loans and the applicable margin was 2.25%. The weighted
average interest rate on the outstanding balance of the
Partnership’s term loan at December 31, 2009,
excluding the effect of interest rate swaps, was 2.5%.
Borrowings under the Partnership Credit Agreement are secured by
substantially all of the personal property assets of the
Partnership
Borrowers, other than the assets of EXLP ABS 2009 LLC and its
subsidiaries, which secure the Partnership’s asset-backed
securitization facility discussed below. In addition, all of the
membership interests of the Partnership’s restricted
subsidiaries have been pledged to secure the obligations under
the Partnership Credit Agreement. Subject to certain conditions,
at the Partnership’s request, and with the approval of the
lenders, the aggregate commitments under the Partnership’s
revolving credit facility may be increased by an additional
$17.5 million. This amount will be increased on a
dollar-for-dollar
basis with each payment under the term loan facility.
The Partnership Credit Agreement contains various covenants with
which the Partnership must comply, including restrictions on the
use of proceeds from borrowings and limitations on its ability
to: incur additional debt or sell assets, make certain
investments and acquisitions, grant liens and pay dividends and
distributions. The Partnership must maintain various
consolidated financial ratios, including a ratio of EBITDA (as
defined in the Partnership Credit Agreement) to Total Interest
Expense (as defined in the Partnership Credit Agreement) of not
less than 2.5 to 1.0, and a ratio of Total Debt (as defined in
the Partnership Credit Agreement) to EBITDA of not greater than
5.0 to 1.0. As of December 31, 2009, the Partnership
maintained a 5.2 to 1.0 EBITDA to Total Interest Expense ratio
and a 4.0 to 1.0 Total Debt to EBITDA ratio. The Partnership
Credit Agreement allows for the Partnership’s Total Debt to
EBITDA ratio to be increased from 5.0 to 1.0 to 5.5 to 1.0
during a quarter when an acquisition closes meeting certain
thresholds and for the following two quarters after the
acquisition closes. Therefore, because the Partnership acquired
from us additional contract operations customer service
agreements and a fleet of compressor units used to provide
compression services under those agreements which met the
applicable thresholds in the fourth quarter of 2009, the maximum
allowed ratio of Total Debt to EBITDA was increased from 5.0 to
1.0 to 5.5 to 1.0 for the period from December 31, 2009
through June 30, 2010. After June 30, 2010, the
Partnership’s required Total Debt to EBITDA ratio will
revert to 5.0 to 1.0. If the Partnership continues to experience
a deterioration in the demand for its services and is unable to
consummate further acquisitions from us, amend its senior
secured credit facility or restructure its debt, it estimates
that it could be in violation of the maximum Total Debt to
F-27
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
EBITDA covenant ratio contained in its senior secured credit
facility in 2010. As of December 31, 2009, the Partnership
was in compliance with all financial covenants under the
Partnership Credit Agreement.
The
Partnership Asset-Backed Securitization Facility
In October 2009, the Partnership entered into a new
$150 million asset-backed securitization facility (the
“2009 ABS Facility”). The 2009 ABS Facility notes are
revolving in nature and are payable in July 2013. Interest and
fees payable to the noteholders accrue on these notes at a
variable rate consisting of an applicable margin of 3.5% plus,
at the Partnership’s option, either LIBOR or a base rate.
The weighted average interest rate on the outstanding balance of
the 2009 ABS Facility at December 31, 2009, excluding the
effect of interest rate swaps, was 3.8%. Repayment of the 2009
ABS Facility notes has been secured by a pledge of all of the
assets of EXLP ABS 2009 LLC and its subsidiaries, consisting
primarily of specified compression services contracts and a
fleet of natural gas compressor units. The amount outstanding at
any time is limited to the lower of (i) 75% of the value of
the natural gas compression equipment owned by EXLP ABS 2009 LLC
and its subsidiaries (as defined in the agreement),
(ii) 4.0 times free cash flow or (iii) the amount
calculated under an interest coverage test. Additionally, the
Partnership Credit Agreement limits the amount we can borrow
under the 2009 ABS Facility to two times the Partnership’s
EBITDA (as defined in the Partnership Credit Agreement). The
related indenture contains customary terms and conditions with
respect to an issuance of asset-backed securities, including
representations and warranties, covenants and events of default.
As of December 31, 2009, there was $30.0 million in
outstanding borrowings under the 2009 ABS Facility and
$120.0 million of unfunded commitments. Under the 2009 ABS
Facility, the Partnership had $0.4 million of restricted
cash as of December 31, 2009.
4.25% Convertible
Senior Notes
In June 2009, we issued under our shelf registration statement
$355.0 million aggregate principal amount of 4.25%
convertible senior notes due June 2014 (the
“4.25% Notes”), including $30.0 million
principal amount issued pursuant to the underwriter’s
overallotment option. The 4.25% Notes are convertible upon
the occurrence of certain conditions into shares of our common
stock at an initial conversion rate of 43.1951 shares of
our common stock per $1,000 principal amount of the convertible
notes, equivalent to an initial conversion price of
approximately $23.15 per share of common stock. The conversion
rate will be subject to adjustment following certain dilutive
events and certain corporate transactions. The
4.25% Notes’ intrinsic value did not exceed their
principal amount as of December 31, 2009. We may not redeem
the notes prior to the maturity date of the notes.
ASC
470-20,
“Debt — Debt with Conversion and Other
Options” (“ASC
470-20”),
requires that the liability and equity components of certain
convertible debt instruments that may be settled in cash upon
conversion be separately accounted for in a manner that reflects
an issuer’s nonconvertible debt borrowing rate. Our
4.25% Notes are being accounted for under ASC
470-20,
and
$97.9 million was recorded as a debt discount and reflected in
equity related to the convertible feature of these notes. The
unamortized discount on the 4.25% Notes will be amortized
using the effective interest method through June 30, 2014.
During the year ended December 31, 2009, we recognized
$8.4 million of interest expense related to the contractual
interest coupon and $8.3 million of amortization of the
debt discount, respectively. The effective interest rate on the
debt component of these notes was 11.67% for the year ended
December 31, 2009.
The 4.25% Notes are our senior unsecured obligations and
rank senior in right of payment to our existing and future
indebtedness that is expressly subordinated in right of payment
to the 4.25% Notes; equal in right of payment to our
existing and future unsecured indebtedness that is not so
subordinated; junior in right of payment to any of our secured
indebtedness to the extent of the value of the assets securing
such indebtedness; and structurally junior to all existing and
future indebtedness and liabilities incurred by our
subsidiaries. The 4.25% Notes are not guaranteed by any of
our subsidiaries.
F-28
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In connection with the offering of the 4.25% Notes, we
purchased call options on our stock at approximately $23.15 per
share of common stock and sold warrants on our stock at
approximately $32.67 per share of common stock. These
transactions economically adjust the effective conversion price
to $32.67 for $325.0 million of the 4.25% Notes and
therefore are expected to reduce the potential dilution to our
common stock upon any such conversion.
We used $36.3 million of the net proceeds from this debt
offering and the full $53.1 million of the proceeds from
the warrants sold to pay the cost of the purchased call options,
and the remaining net proceeds from this debt offering to repay
approximately $173.8 million of indebtedness under our
revolving credit facility and approximately $135.0 million
of indebtedness outstanding under the 2007 ABS Facility.
4.75% Convertible
Senior Notes
In December 2003, we issued $143.75 million aggregate
principal amount of 4.75% Convertible Senior Notes due
January 15, 2014 (the “4.75% Notes”). In
connection with the closing of the merger, on August 20,
2007, we executed supplemental indentures between Hanover and
the trustees, pursuant to which Exterran Holdings, Inc. agreed
to fully and unconditionally guarantee the obligations of
Hanover relating to the 4.75% Notes. Hanover, renamed
Exterran Energy Corp., the issuer of the 4.75% Notes, is a
wholly-owned subsidiary of Exterran Holdings, Inc. There are no
significant restrictions on the ability of Exterran Holdings,
Inc. to obtain funds from Exterran Energy Corp. by dividend or
loan.
The 4.75% Notes are our general unsecured obligations and
rank equally in right of payment with all of our other senior
debt. The 4.75% Notes are effectively subordinated to all
existing and future liabilities of our subsidiaries.
The 4.75% Notes are convertible into a whole number of
shares of our common stock and cash in lieu of fractional
shares. The 4.75% Notes are convertible at the option of
the holder into shares of our common stock at a conversion rate
of 21.6667 shares of common stock per $1,000 principal
amount of convertible senior notes, which is equivalent to a
conversion price of approximately $46.15 per share.
At any time on or after January 15, 2011 but prior to
January 15, 2013, we may redeem some or all of the
4.75% Notes at a redemption price equal to 100% of the
principal amount of the 4.75% Notes plus accrued and unpaid
interest, if any, if the price of our common stock exceeds 135%
of the conversion price of the convertible senior notes then in
effect for 20 trading days out of a period of 30 consecutive
trading days. At any time on or after January 15, 2013, we
may redeem some or all of the 4.75% Notes at a redemption
price equal to 100% of the principal amount of the
4.75% Notes plus accrued and unpaid interest, if any.
Holders have the right to require us to repurchase the
4.75% Notes upon a specified change in control, at a
repurchase price equal to 100% of the principal amount of
4.75% Notes plus accrued and unpaid interest, if any.
Debt
Compliance
We were in compliance with our debt covenants as of
December 31, 2009. If we fail to remain in compliance with
our financial covenants we would be in default under our credit
agreements. In addition, if we experience a material adverse
effect on our assets, liabilities, financial condition,
business, operations or prospects that, taken as a whole,
impacted our ability to perform our obligations under our credit
agreements, this could lead to a default under our credit
agreements. A default under one or more of our debt agreements,
including a default by the Partnership under its credit
facilities, would trigger cross-default provisions under certain
of our debt agreements, which would accelerate our obligation to
repay our indebtedness under those agreements.
F-29
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Debt
Extinguishment Charges
In connection with the merger, in the third quarter of 2007 we
refinanced various debt instruments and incurred debt
extinguishment charges. A summary of these charges is shown
below (in thousands):
|
Tender fees
|
$ | 46,268 | ||
|
Call premium
|
7,497 | |||
|
Unamortized deferred financings costs
|
16,385 | |||
|
Charges included in debt extinguishment costs
|
70,150 | |||
|
Termination of interest rate swaps (included in Interest expense)
|
6,964 | |||
|
Total debt extinguishment costs and related charges
|
$ | 77,114 | ||
Long-term
Debt Maturity Schedule
Contractual maturities of long-term debt (excluding interest to
be accrued thereon) at December 31, 2009 are as follows (in
thousands):
| December 31, 2009 | ||||
|
2010
|
$ | 40,179 | (1) | |
|
2011
|
462,565 | |||
|
2012
|
998,973 | |||
|
2013
|
350,000 | |||
|
2014
|
498,750 | (2) | ||
|
Thereafter
|
— | |||
|
Total debt
|
$ | 2,350,467 | ||
| (1) | Maturities of $40.2 million due in 2010 are classified as long-term because we have the intent and ability to refinance these maturities with available credit. | |
| (2) | This amount includes the full face value of the 4.25% Notes and is not reduced by the unamortized discount of $89.5 million as of December 31, 2009. |
| 12. | Accounting for Derivatives |
We are exposed to market risks primarily associated with changes
in interest rates and foreign currency exchange rates. We use
derivative financial instruments to minimize the risks
and/or
costs
associated with financial activities by managing our exposure to
interest rate fluctuations on a portion of our debt obligations.
We also use derivative financial instruments to minimize the
risks caused by currency fluctuations in certain foreign
currencies. We do not use derivative financial instruments for
trading or other speculative purposes.
Interest
Rate Risk
At December 31, 2009, we were a party to interest rate
swaps in which we pay fixed payments and receive floating
payments on a notional value of $1,445.0 million. We
entered into these swaps to offset changes in expected cash
flows due to fluctuations in the associated variable interest
rates. Our interest rate swaps expire over varying dates, with
interest rate swaps having a notional amount of
$1,374.7 million expiring through January 2013 and the
remaining interest rate swaps expiring through October 2019. The
weighted average effective fixed interest rate payable on our
interest rate swaps was 4.2% as of December 31, 2009. We
have designated these interest rate swaps as cash flow hedging
instruments so that any change in their fair values is
recognized as a component of comprehensive income (loss) and is
included in accumulated other
F-30
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
comprehensive income (loss) to the extent the hedge is
effective. The swap terms substantially coincide with the hedged
item and are expected to offset changes in expected cash flows
due to fluctuations in the variable rate, and therefore we
currently do not expect a significant amount of ineffectiveness
on these hedges. We perform quarterly calculations to determine
whether the swap agreements are still effective and to calculate
any ineffectiveness. We recorded approximately $0.6 million
and $2.1 million of interest expense in the years ended
December 31, 2009 and 2008, respectively, due to the
ineffectiveness related to these swaps. We estimate that
approximately $48.4 million of deferred pre-tax losses,
included in our accumulated other comprehensive loss at
December 31, 2009, will be reclassified into earnings as
interest expense at then-current values during the next twelve
months as the underlying hedged transactions occur. Cash flows
from derivatives designated as hedges are classified in our
condensed consolidated statements of cash flows under the same
category as the cash flows from the underlying assets,
liabilities or anticipated transactions.
Foreign
Currency Exchange Risk
We operate in over 30 countries throughout the world, and a
fluctuation in the value of the currencies of these countries
relative to the U.S. dollar could impact our profits from
international operations and the value of the net assets of our
international operations when reported in U.S. dollars in
our financial statements. From time to time we may enter into
foreign currency hedges to reduce our foreign exchange risk
associated with cash flows we will receive in a currency other
than the functional currency of the local Exterran affiliate
that entered into the contract. The impact of foreign currency
exchange on our condensed consolidated statements of operations
will depend on the amount of our net asset and liability
positions exposed to currency fluctuations in future periods.
Foreign currency hedges that meet the hedging requirements or
that qualify for hedge accounting treatment are accounted for as
cash flow hedges and changes in the fair value are recognized as
a component of comprehensive income (loss) to the extent the
hedge is effective. The amounts recognized as a component of
other comprehensive income (loss) will be reclassified into
earnings (loss) in the periods in which the underlying foreign
currency exchange transaction is recognized. For foreign
currency hedges that do not qualify for hedge accounting
treatment, changes in fair value and gains and losses on
settlement are included in other (income) expense, net in our
condensed consolidated statements of operations.
The following tables present the effect of derivative
instruments on our consolidated financial position and results
of operations (in thousands):
| December 31, 2009 | ||||||
|
Fair Value
|
||||||
| Balance Sheet Location | Asset (Liability) | |||||
|
Derivatives designated as hedging instruments:
|
||||||
|
Interest rate hedges
|
Intangibles and other assets | $ | 262 | |||
|
Interest rate hedges
|
Accrued liabilities | (48,421 | ) | |||
|
Interest rate hedges
|
Other long-term liabilities | (35,300 | ) | |||
|
Total derivatives
|
$ | (83,459 | ) | |||
F-31
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Year Ended December 31, 2009 | ||||||||||
|
Location of Gain
|
Gain (Loss)
|
|||||||||
|
Gain (Loss)
|
(Loss) Reclassified
|
Reclassified from
|
||||||||
|
Recognized in Other
|
from Accumulated
|
Accumulated Other
|
||||||||
|
Comprehensive
|
Other Comprehensive
|
Comprehensive
|
||||||||
|
Income (Loss) on
|
Income (Loss) into
|
Income (Loss) into
|
||||||||
| Derivatives | Income (Loss) | Income (Loss) | ||||||||
|
Derivatives designated as cash flow hedges:
|
||||||||||
|
Interest rate hedges
|
$ | 49,200 | Interest expense | $ | 37,366 | |||||
|
Foreign currency hedge
|
781 | Fabrication revenue | (473 | ) | ||||||
|
Total
|
$ | 49,981 | $ | 36,893 | ||||||
| Year Ended December 31, 2009 | ||||||||
|
Amount of Gain
|
||||||||
|
(Loss)
|
||||||||
|
Location of Gain (Loss)
|
Recognized in
|
|||||||
|
Recognized in Income (Loss)
|
Income (Loss)
|
|||||||
| on Derivative | on Derivative | |||||||
|
Derivatives not designated as hedging instruments:
|
||||||||
|
Foreign currency derivative
|
Other income (expense | ), net | $ | (106 | ) | |||
The counterparties to our derivative agreements are major
international financial institutions. We monitor the credit
quality of these financial institutions and do not expect
non-performance by any counterparty, although such
non-performance could have a material adverse effect on us. We
have no specific collateral posted for our derivative
instruments. The counterparties to our interest rate swaps are
also lenders under our credit facility
and/or
our
ABS facility and, in that capacity, share proportionally in the
collateral pledged under the related facility.
| 13. | Fair Value Measurements |
ASC 820, “Fair Value Measurements and Disclosures”
(“ASC 820”), establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure
fair value into the following three broad categories.
| • | Level 1 — Quoted unadjusted prices for identical instruments in active markets to which we have access at the date of measurement. | |
| • | Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or prices vary substantially over time or among brokered market makers. | |
| • | Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect our own assumptions regarding how market participants would price the asset or liability based on the best available information. |
F-32
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes the valuation of our interest
rate swaps and impaired assets during 2009 under ASC 820 pricing
levels as of the date of valuation (in thousands):
|
Quoted
|
||||||||||||||||
|
Market
|
||||||||||||||||
|
Prices in
|
Significant
|
Significant
|
||||||||||||||
|
Active
|
Other
|
Unobservable
|
||||||||||||||
|
Markets
|
Observable
|
Inputs
|
||||||||||||||
| Total | (Level 1) | Inputs (Level 2) | (Level 3) | |||||||||||||
|
Interest rate swaps asset (liability)
|
$ | (83,459 | ) | $ | — | $ | (83,459 | ) | $ | — | ||||||
|
Impairment of fleet units
|
7,955 | — | — | 7,955 | ||||||||||||
|
International contract operations goodwill
|
— | — | — | — | ||||||||||||
|
Impairment of investments in non-consolidated affiliates
|
1,217 | — | — | 1,217 | ||||||||||||
|
Impairment of manufacturing facilities
|
9,471 | — | 9,471 | — | ||||||||||||
The following table summarizes the valuation of our derivatives
and impaired assets during 2008 under ASC 820 pricing levels as
of the date of valuation (in thousands):
|
Quoted
|
||||||||||||||||
|
Market
|
||||||||||||||||
|
Prices in
|
Significant
|
Significant
|
||||||||||||||
|
Active
|
Other
|
Unobservable
|
||||||||||||||
|
Markets
|
Observable
|
Inputs
|
||||||||||||||
| Total | (Level 1) | Inputs (Level 2) | (Level 3) | |||||||||||||
|
Interest rate swaps asset (liability)
|
$ | (99,535 | ) | $ | — | $ | (99,535 | ) | $ | — | ||||||
|
Foreign currency derivatives asset (liability)
|
(3,312 | ) | — | (3,312 | ) | — | ||||||||||
|
Impairment of fleet units
|
15,318 | — | — | 15,318 | ||||||||||||
|
North America contract operations goodwill
|
— | — | — | — | ||||||||||||
Our interest rate swaps and foreign currency derivatives are
recorded at fair value utilizing a combination of the market and
income approach to fair value. We used discounted cash flows and
market based methods to compare similar derivative instruments.
Our estimate of the fair value of the impaired fleet units was
based on the estimated component value of the equipment that we
plan to use. See Note 9 for a discussion of the valuation
methodology we used related to the goodwill impairments. Our
estimate of the fair value of our investments in
non-consolidated affiliates was based on discounted cash flow
models that use probability weighted estimated cash flows to
estimate the fair value of our investment in these
non-consolidated affiliates. The primary inputs for the cash
flow models were estimates of cash flows from operations we
received from management of the joint ventures and our estimates
of final proceeds that we would ultimately receive. Our estimate
of the fair value of the impaired manufacturing facilities was
based on sales of similar assets.
| 14. | Fleet Impairment |
As a result of a decline in market conditions and operating
horsepower in North America during 2009, we reviewed the idle
compression assets used in our contract operations segments for
units that are not of the type, configuration, make or model
that are cost efficient to maintain and operate. As a result of
that review, we determined that 1,232 units representing
264,900 horsepower would be retired from the fleet. We performed
a cash flow analysis of the expected proceeds from the
disposition of these units to determine the fair value of the
fleet assets we will no longer utilize in our operations. The
net book value of these assets exceeded the fair value by
$91.0 million and was recorded as a long-lived asset
impairment.
During 2008, management identified certain fleet units that will
not be used in our contract operations business in the future
and recorded a $1.5 million impairment. During 2008, we
also recorded a $1.0 million impairment related to the loss
sustained on offshore units that were on platforms which
capsized during
F-33
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Hurricane Ike. These fleet impairments are recorded in Fleet
impairment expense in the consolidated statements of operations.
We were involved in a project in the Cawthorne Channel in
Nigeria (the “Cawthorne Channel Project”), to process
natural gas from certain Nigerian oil and natural gas fields.
The area in Nigeria where the Cawthorne Channel Project was
located experienced local civil unrest and violence, and natural
gas delivery to the Cawthorne Channel Project was stopped for
significant periods of time starting in June 2006. Additionally,
in late July 2008, a vessel owned by a third party that provided
storage and splitting services for the liquids processed by our
facility was the target of a local security incident. As a
result, the Cawthorne Channel Project only operated for limited
periods of time beginning in June 2006.
As a result of these operational difficulties and taking into
consideration the project’s historical performance and
declines in commodity prices, we undertook an assessment of our
estimated future cash flows from the Cawthorne Channel Project.
Based on the analysis we completed, we determined that we would
not recover all of our remaining investment in the Cawthorne
Channel Project. Accordingly, we recorded an impairment charge
of $21.6 million in our 2008 results to reduce the carrying
amount of our assets associated with the Cawthorne Channel
Project to their estimated fair value, which is reflected in
Fleet impairment expense in our consolidated statements of
operations.
In November 2009, we sold our investment in the subsidiary that
owns the barge mounted processing plant and other related assets
used on the Cawthorne Channel Project for $37.0 million.
This sale resulted in a pre-tax gain of approximately
$20.8 million which is reflected in Other (income) expense,
net in our consolidated statements of operations. The assets
associated with our investment in the Cawthorne Channel Project
were part of our international contract operations segment.
Following completion of the merger between Hanover and
Universal, our management reviewed the compression fleet assets
used in our North America contract operations segment that
existed at the merger date. Management reviewed our fleet for
units that would not be of the type, configuration, make or
model that we would want to continue to offer due to the cost to
refurbish the equipment, the incremental costs of maintaining
more types of equipment and the increased financial flexibility
of the new company to build new units in the configuration
currently in demand by our customers. Prior to the merger, we
had planned to rebuild or reconfigure these units over time to
make them into the configurations currently in demand by
customers.
We performed a cash flow analysis of the expected proceeds from
the disposition to determine the fair value for the fleet assets
we will no longer utilize in our operations. The net book value
of these assets, which were owned by Hanover prior to the
merger, exceeded the fair value by $61.9 million, and was
recorded as a long-lived asset impairment in 2007. The
impairment is recorded in fleet impairment expense in our
consolidated statements of operations. Our plan to dispose of
the identified fleet assets did not meet the criteria to be
classified as assets held for sale. No impairment charge was
recorded on units previously owned by Universal as the intended
use/disposition was considered as part of fair value of these
units in the allocation of the purchase price.
| 15. | Restructuring Charges |
As a result of the reduced level of demand for our products and
services, our management approved a plan in March 2009 to close
certain facilities to consolidate our compression fabrication
activities in our fabrication segment. These actions were the
result of significant fabrication capacity stemming from the
2007 merger that created Exterran and the lack of consolidation
of this capacity since that time, as well as the anticipated
continuation of weaker global economic and energy industry
conditions. The consolidation of those compression fabrication
activities was completed in September 2009. In August 2009, we
announced our plan to consolidate certain fabrication operations
in Houston including the closure of two facilities in Texas.
F-34
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
However, due to a subsequent improvement in bookings for certain
of our production and processing equipment products, we decided
to close only one of the fabrication facilities in Texas. In
addition, our management also implemented cost reductions
programs across all of our segments during 2009 primarily
related to workforce reductions.
We incurred charges in 2009 with respect to these restructuring
charges discussed above of $20.3 million. These charges are
reflected as Restructuring charges in our consolidated
statements of operations. Approximately $13.4 million of
the charges are severance and employee benefit costs,
approximately $6.0 million is facility impairment charges
in our fabrication segment and the remaining amount is for other
facility closure and moving costs. Of the total estimated
charges, $14.2 million resulted in cash expenditures.
The following table summarizes the changes to our accrued
liability balance related to restructuring charges for year
ended December 31, 2009 (in thousands):
|
Restructuring
|
||||
| Charges Accrual | ||||
|
Beginning balance at December 31, 2008
|
$ | — | ||
|
Additions for costs expensed
|
20,326 | |||
|
Non-cash facility impairments
|
(5,997 | ) | ||
|
Reductions for payments
|
(14,197 | ) | ||
|
Ending balance at December 31, 2009
|
$ | 132 | ||
| 16. | Income Taxes |
The components of income (loss) before income taxes were as
follows (in thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
United States
|
$ | (4,385 | ) | $ | (1,015,475 | ) | $ | (53,947 | ) | |||
|
Foreign
|
(193,172 | ) | 70,866 | 51,608 | ||||||||
|
Loss before income taxes
|
$ | (197,557 | ) | $ | (944,609 | ) | $ | (2,339 | ) | |||
The provision for income taxes consisted of the following (in
thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Current tax provision:
|
||||||||||||
|
U.S. federal
|
$ | (2,906 | ) | $ | 2,491 | $ | (28 | ) | ||||
|
State
|
2,296 | 5,063 | 3,548 | |||||||||
|
Foreign
|
58,842 | 65,800 | 28,165 | |||||||||
|
Total current
|
58,232 | 73,354 | 31,685 | |||||||||
|
Deferred tax provision (benefit):
|
||||||||||||
|
U.S. federal
|
903 | (22,965 | ) | (23,231 | ) | |||||||
|
State
|
(4,193 | ) | (237 | ) | 534 | |||||||
|
Foreign
|
(3,275 | ) | (12,933 | ) | (7,430 | ) | ||||||
|
Total deferred
|
(6,565 | ) | (36,135 | ) | (30,127 | ) | ||||||
|
Provision for income taxes
|
$ | 51,667 | $ | 37,219 | $ | 1,558 | ||||||
F-35
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The provision for income taxes for 2009, 2008 and 2007 resulted
in effective tax rates on continuing operations of (26.2)%,
(3.9)% and (66.6)%, respectively. The reasons for the
differences between these effective tax rates and the
U.S. statutory rate of 35% are as follows (in thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Income taxes at U.S. federal statutory rate of 35%
|
$ | (69,145 | ) | $ | (330,613 | ) | $ | (819 | ) | |||
|
Net state income taxes
|
(1,249 | ) | 3,385 | 2,797 | ||||||||
|
Foreign taxes
|
34,879 | 29,909 | 20,230 | |||||||||
|
Noncontrolling interest
|
(3,264 | ) | (5,588 | ) | (2,182 | ) | ||||||
|
Foreign tax credits
|
(3,129 | ) | (14,244 | ) | (8,927 | ) | ||||||
|
Unrecognized tax benefits
|
7,784 | 1,682 | (1,760 | ) | ||||||||
|
Valuation allowances
|
5,044 | 1,157 | (9,583 | ) | ||||||||
|
Executive compensation
|
— | 655 | 1,914 | |||||||||
|
Goodwill impairment
|
52,772 | 351,849 | — | |||||||||
|
Impairment of investments in non-consolidated affiliates
|
25,407 | — | — | |||||||||
|
Other
|
2,568 | (973 | ) | (112 | ) | |||||||
|
Provision for income taxes
|
$ | 51,667 | $ | 37,219 | $ | 1,558 | ||||||
Deferred income tax balances are the direct effect of temporary
differences between the financial statement carrying amounts and
the tax basis of assets and liabilities at the enacted tax rates
expected to be in effect when the taxes are actually paid or
recovered. The tax effects of temporary differences that give
rise to deferred tax assets and deferred tax liabilities are as
follows (in thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Deferred tax assets:
|
||||||||
|
Net operating loss carryforwards
|
$ | 321,396 | $ | 344,243 | ||||
|
Inventory
|
4,063 | 3,133 | ||||||
|
Alternative minimum tax credit carryforwards
|
6,522 | 9,314 | ||||||
|
Accrued liabilities
|
19,943 | 36,585 | ||||||
|
Foreign tax credit carryforwards
|
82,338 | 79,216 | ||||||
|
Capital loss carryforwards
|
438 | — | ||||||
|
Other
|
31,074 | 57,879 | ||||||
|
Subtotal
|
465,774 | 530,370 | ||||||
|
Valuation allowances
|
(20,033 | ) | (15,196 | ) | ||||
|
Total deferred tax assets
|
445,741 | 515,174 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Property, plant and equipment
|
(439,925 | ) | (481,932 | ) | ||||
|
Basis difference in the Partnership
|
(88,155 | ) | (94,670 | ) | ||||
|
Goodwill and intangibles
|
(15,901 | ) | (19,963 | ) | ||||
|
Other
|
(34,546 | ) | (48,248 | ) | ||||
|
Total deferred tax liabilities
|
(578,527 | ) | (644,813 | ) | ||||
|
Net deferred tax liabilities
|
$ | (132,786 | ) | $ | (129,639 | ) | ||
F-36
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Tax balances are presented in the accompanying consolidated
balance sheets as follows (in thousands):
| December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Current deferred income tax assets
|
$ | 25,913 | $ | 36,816 | ||||
|
Intangibles and other assets
|
34,290 | 35,768 | ||||||
|
Accrued liabilities
|
(10,863 | ) | (4,698 | ) | ||||
|
Deferred income tax liabilities
|
(182,126 | ) | (197,525 | ) | ||||
|
Net deferred tax liabilities
|
$ | (132,786 | ) | $ | (129,639 | ) | ||
At December 31, 2009, we had U.S. federal net
operating loss carryforwards and capital loss carryforwards of
approximately $796.4 million and $1.3 million,
respectively, that are available to offset future taxable
income. If not used, the carryforwards will begin to expire in
2021 and 2010, respectively. We also had approximately
$145.7 million of net operating loss carryforwards in
certain foreign jurisdictions, approximately $48.5 million
of which has no expiration date, $54.4 million of which is
subject to expiration from 2011 to 2014, and the remainder of
which expires in future years through 2029. Foreign tax credit
carryforwards of $82.3 million and alternative minimum tax
credit carryforwards of $6.5 million are available to
offset future payments of U.S. federal income tax. The
foreign tax credits will expire in varying amounts beginning in
2013, whereas the alternative minimum tax credits may be carried
forward indefinitely under current U.S. tax law.
Pursuant to Sections 382 and 383 of the Internal Revenue
Code of 1986, as amended, utilization of loss carryforwards and
credit carryforwards, such as foreign tax credits, will be
subject to annual limitations due to the ownership changes of
both Hanover and Universal. In general, an ownership change, as
defined by Section 382, results from transactions
increasing the ownership of certain stockholders or public
groups in the stock of a corporation by more than
50 percentage points over a three-year period. The merger
resulted in such an ownership change for both Hanover and
Universal. Our ability to utilize loss carryforwards and credit
carryforwards against future U.S. federal taxable income
and future U.S. federal income tax may be limited. The
limitations may cause us to pay U.S. federal income taxes
earlier; however, we do not currently expect that any loss
carryforwards or credit carryforwards will expire as a result of
these limitations.
Foreign tax credits that are not utilized in the year they are
generated can be carried forward for 10 years offsetting
payments of U.S. federal income taxes on a
dollar-for-dollar
basis. We believe that we will generate sufficient taxable
income in the future from our operating activities as well as
from the transfer of U.S. contract operations customer
contracts and assets to the Partnership that will cause us to
use our net operating loss carryforwards. After the utilization
of our net operating loss carryforwards, we expect that we will
generate sufficient foreign source taxable income to utilize our
foreign tax credits within the
10-year
carryforward period.
We record valuation allowances when it is more likely than not
that some portion or all of our deferred tax assets will not be
realized. The ultimate realization of the deferred tax assets
depends on the ability to generate sufficient taxable income of
the appropriate character and in the appropriate taxing
jurisdictions in the future. If we do not meet our expectations
with respect to taxable income, we may not realize the full
benefit from our deferred tax assets which would require us to
record a valuation allowance in our tax provision in future
years.
We have not provided U.S. federal income taxes on
indefinitely (or permanently) reinvested cumulative earnings of
approximately $580.9 million generated by our foreign
subsidiaries. Such earnings are from ongoing operations which
will be used to fund international growth. In the event of a
distribution of those earnings to the U.S. in the form of
dividends, we may be subject to both foreign withholding taxes
and U.S. federal income taxes net of allowable foreign tax
credits.
F-37
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A reconciliation of the beginning and ending amount of
unrecognized tax benefits (including discontinued operations) is
shown below (in thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Beginning balance
|
$ | 13,870 | $ | 14,624 | $ | 12,652 | ||||||
|
Additions based on tax positions related to the current year
|
— | 501 | 1,443 | |||||||||
|
Additions based on tax positions related to prior years
|
5,886 | 31 | 2,700 | |||||||||
|
Additions due to acquisition
|
— | — | 920 | |||||||||
|
Reductions based on tax positions related to prior years
|
— | (1,171 | ) | — | ||||||||
|
Reductions due to settlements and lapses of applicable statutes
of limitations
|
— | (115 | ) | (3,091 | ) | |||||||
|
Ending balance
|
$ | 19,756 | $ | 13,870 | $ | 14,624 | ||||||
We had $19.8 million, $13.9 million and
$14.6 million of unrecognized tax benefits at
December 31, 2009, December 31, 2008 and
December 31, 2007, respectively, which if recognized would
affect the effective tax rate (except for amounts that would be
reflected in Income (loss) from discontinued operations, net of
tax). We also have recorded $11.9 million,
$3.5 million and $5.4 million of potential interest
expense and penalties related to unrecognized tax benefits
associated with uncertain tax positions (including discontinued
operations) as of December 31, 2009, 2008 and 2007,
respectively. To the extent interest and penalties are not
assessed with respect to uncertain tax positions, amounts
accrued will be reduced and reflected as reductions in income
tax expense.
We and our subsidiaries file consolidated and separate income
tax returns in the U.S. federal jurisdiction and in
numerous state and foreign jurisdictions. We are subject to
U.S. federal income tax examinations for tax years
beginning from 1997 onward and the Internal Revenue Service has
yet to commence an examination of our U.S. federal income
tax returns for such tax years.
State income tax returns are generally subject to examination
for a period of three to five years after filing of the returns.
However, the state impact of any U.S. federal audit
adjustments and amendments remain subject to examination by
various states for a period of up to one year after formal
notification to the states. As of December 31, 2009, we did
not have any state audits underway that would have a material
impact on our financial position or results of operations.
We are subject to examination by taxing authorities throughout
the world, including major foreign jurisdictions such as
Argentina, Brazil, Canada, Italy, Mexico and Venezuela. With few
exceptions, we and our subsidiaries are no longer subject to
foreign income tax examinations for tax years before 2001.
Several foreign audits are currently in progress and we do not
expect any tax adjustments that would have a material impact on
our financial position or results of operations.
We do not anticipate that total unrecognized tax benefits will
significantly change due to the settlement of audits and the
expiration of statutes of limitations prior to December 31,
2010. However, due to the uncertain and complex application of
tax regulations, it is possible that the ultimate resolution of
these matters may result in liabilities which could materially
differ from these estimates.
| 17. | Common Stockholders’ Equity |
On August 20, 2007, our board of directors authorized the
repurchase of up to $200 million of our common stock
through August 19, 2009. In December 2008, our board of
directors increased the share repurchase program, from
$200 million to $300 million, and extended the
expiration date of the authorization, from August 19, 2009
to December 15, 2010. Under the stock repurchase program,
we may repurchase shares in
F-38
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
open market purchases or in privately negotiated transactions in
accordance with applicable insider trading and other securities
laws and regulations. We may also implement all or part of the
repurchases under a
Rule 10b5-1
trading plan, so as to provide the flexibility to extend our
share repurchases beyond the quarterly purchasing window. The
timing and extent to which we repurchase our shares will depend
upon market conditions and other corporate considerations, and
will be at management’s discretion. Repurchases under the
program may commence or be suspended at any time without prior
notice. The stock repurchase program may be funded through cash
provided by operating activities or borrowings. During 2009, we
did not repurchase any shares of our common stock under this
program. Since the program was initiated, we have repurchased
5,416,221 shares of our common stock at an aggregate cost
of $199.9 million. At December 31, 2009, we were
authorized to purchase up to an additional $100.1 million
worth of our common stock under the stock repurchase program.
The Exterran Holdings, Inc. 2007 Amended and Restated Stock
Incentive Plan (the “2007 Plan”) allows us to withhold
shares to use upon vesting of restricted stock at the current
market price to cover the minimum level of taxes required to be
withheld on the vesting date. We purchased 57,284 of our shares
from participants for approximately $1.0 million during
2009 to cover tax withholding. The 2007 Plan is administered by
the compensation committee of our board of directors.
| 18. | Stock-based Compensation and Awards |
The following table presents the stock-based compensation
expense included in our results of operations (in thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Stock options and unit options
|
$ | 5,673 | $ | 4,481 | $ | 1,757 | ||||||
|
Restricted stock, restricted stock units and phantom units
|
17,983 | 13,023 | 21,152 | |||||||||
|
Unit appreciation rights
|
— | (1,078 | ) | 248 | ||||||||
|
Employee stock purchase plan
|
935 | 899 | 154 | |||||||||
|
Total stock-based compensation expense
|
$ | 24,591 | $ | 17,325 | $ | 23,311 | ||||||
Upon the closing of the merger, each share of restricted stock
issued by Hanover and each Hanover stock option was converted
into Exterran restricted stock and stock options, respectively,
based on the applicable exchange ratio, and each Hanover stock
option and each share of restricted stock or restricted stock
unit of Hanover granted prior to the date of the merger
agreement and outstanding as of the effective time of the merger
vested in full. As a result of the merger, we included
$11.7 million within our stock-based compensation expense
for 2007 related to the accelerated vesting of Hanover’s
restricted stock and stock options.
Stock
Incentive Plan
On August 20, 2007, we adopted the Exterran Holdings, Inc.
2007 Stock Incentive Plan (as amended and restated, the
“2007 Plan”), which previously had been approved by
the stockholders of Hanover and Universal and provides for the
granting of stock-based awards in the form of options,
restricted stock, restricted stock units, stock appreciation
rights and performance awards to our employees and directors. In
April 2009, our stockholders approved an amendment to the 2007
Plan which increased the aggregate number of shares of common
stock available under the 2007 Plan to 6,750,000 from 4,750,000.
Each option and stock appreciation right granted counts as one
share against the aggregate share limit, and each share of
restricted stock and restricted stock unit granted counts as two
shares against the aggregate share limit. Awards granted under
the 2007 Plan that are subsequently cancelled, terminated or
forfeited are available for future grant.
F-39
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Stock
Options
Under the 2007 Plan, stock options are granted at fair market
value at the date of grant, are exercisable in accordance with
the vesting schedule established by the compensation committee
of our board of directors in its sole discretion and expire no
later than seven years after the date of grant. Options
generally vest
33
1
/
3
%
on each of the first three anniversaries of the grant date.
The weighted average fair value at date of grant for options
granted during the years ended December 31, 2009, 2008 and
2007 was $5.87, $16.54 and $23.92, respectively, and was
estimated using the Black-Scholes option valuation model with
the following weighted average assumptions:
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Expected life in years
|
4.5 | 4.5 | 4.5 | |||||||||
|
Risk-free interest rate
|
1.84 | % | 2.41 | % | 4.27 | % | ||||||
|
Volatility
|
40.51 | % | 29.08 | % | 27.18 | % | ||||||
|
Dividend yield
|
0.0 | % | 0.0 | % | 0.0 | % | ||||||
The risk-free interest rate is based on the U.S. Treasury
yield curve in effect at the time of the grant for a period
commensurate with the estimated expected life of the stock
options. Expected volatility is based on the historical
volatility of our stock over the most recent period commensurate
with the expected life of the stock options and other factors.
We have not historically paid a dividend and do not expect to
pay a dividend during the expected life of the stock options.
The following table presents stock option activity for the year
ended December 31, 2009 (in thousands, except per share
data and remaining life in years):
|
Weighted
|
||||||||||||||||
|
Weighted
|
Average
|
Aggregate
|
||||||||||||||
|
Stock
|
Average
|
Remaining
|
Intrinsic
|
|||||||||||||
| Options | Exercise Price | Life | Value | |||||||||||||
|
Options outstanding, December 31, 2008
|
2,027 | $ | 41.50 | |||||||||||||
|
Granted
|
987 | 16.29 | ||||||||||||||
|
Cancelled
|
(181 | ) | 31.11 | |||||||||||||
|
Options outstanding, December 31, 2009
|
2,833 | $ | 33.37 | 4.9 | $ | 5,452 | ||||||||||
|
Options exercisable, December 31, 2009
|
1,733 | $ | 37.13 | 4.2 | $ | 1,301 | ||||||||||
Intrinsic value is the difference between the market value of
our stock and the exercise price of each option multiplied by
the number of options outstanding for those options where the
market value exceeds their exercise price. No stock options were
exercised during the year ended December 31, 2009. The
total intrinsic value of stock options exercised during 2008 and
2007 was $6.6 million and $36.1 million, respectively.
As of December 31, 2009, $5.3 million of unrecognized
compensation cost related to unvested stock options is expected
to be recognized over the weighted-average period of
1.9 years.
Restricted
Stock and Restricted Stock Units
For grants of restricted stock and restricted stock units, we
recognize compensation expense over the vesting period equal to
the fair value of our common stock at the date of grant. Common
stock subject to restricted stock grants generally vests
33
1
/
3
%
on each of the first three anniversaries of the grant date.
F-40
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents restricted stock and restricted
stock unit activity for the year ended December 31, 2009
(in thousands, except per share data):
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Grant-Date
|
||||||||
|
Fair Value
|
||||||||
| Shares | Per Share | |||||||
|
Non-vested restricted stock and restricted stock units,
December 31, 2008
|
535 | $ | 66.46 | |||||
|
Granted
|
994 | 16.22 | ||||||
|
Vested
|
(268 | ) | 59.32 | |||||
|
Cancelled
|
(99 | ) | 30.91 | |||||
|
Non-vested restricted stock and restricted stock units,
December 31, 2009
|
1,162 | $ | 28.15 | |||||
As of December 31, 2009, $16.4 million of unrecognized
compensation cost related to unvested restricted stock and
restricted stock units is expected to be recognized over the
weighted-average period of 1.9 years.
Employee
Stock Purchase Plan
On August 20, 2007, we adopted the Exterran Holdings, Inc.
Employee Stock Purchase Plan (“ESPP”), which is
intended to provide employees with an opportunity to participate
in our long-term performance and success through the purchase of
shares of common stock at a price that may be less than fair
market value. The ESPP is designed to comply with
Section 423 of the Internal Revenue Code of 1986, as
amended. Each quarter, an eligible employee may elect to
withhold a portion of his or her salary up to the lesser of
$25,000 per year or 10% of his or her eligible pay to purchase
shares of our common stock at a price equal to 85% to 100% of
the fair market value of the stock as of the first trading day
of the quarter, the last trading day of the quarter or the lower
of the first trading day of the quarter and the last trading day
of the quarter, as the compensation committee of our board of
directors may determine. The ESPP will terminate on the date
that all shares of common stock authorized for sale under the
ESPP have been purchased, unless it is extended. A total of
650,000 shares of our common stock have been authorized and
reserved for issuance under the ESPP. At December 31, 2009,
367,398 shares remained available for purchase under the
ESPP. Our ESPP plan is compensatory and, as a result, we record
an expense on our consolidated statements of operations related
to the ESPP. Effective July 1, 2009, the purchase discount
under the ESPP was reduced from 15% to 5% of the fair market
value of our common stock on the first trading day of the
quarter or the last trading day of the quarter, whichever is
lower.
Directors’
Stock and Deferral Plan
On August 20, 2007, we adopted the Exterran Holdings, Inc.
Directors’ Stock and Deferral Plan. The purpose of the
Directors’ Stock and Deferral Plan is to provide
non-employee directors of the board of directors with an
opportunity to elect to receive our common stock as payment for
a portion or all of their retainer and meeting fees. The number
of shares to be paid each quarter will be determined by dividing
the dollar amount of fees elected to be paid in common stock by
the closing sales price per share of the common stock on the
last day of the quarter. In addition, directors who elect to
receive a portion or all of their fees in the form of common
stock may also elect to defer, until a later date, the receipt
of a portion or all of their fees to be received in common
stock. We have reserved 100,000 shares under the
Directors’ Stock and Deferral Plan, and as of
December 31, 2009, 83,293 shares remain available to
be issued under the plan.
Unit
Appreciation Rights
As a result of the merger, we assumed 0.3 million
outstanding unit appreciation rights (“UARs”). UARs
entitle the holder to receive a payment from us in cash equal to
the excess of the fair market value of a common unit
F-41
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of Exterran Partners, L.P. (together with its subsidiaries, the
“Partnership”), on the date of exercise over the
exercise price. These UARs vested on January 1, 2009 and
expired on December 31, 2009. None of the UARs were
exercised.
Because the holders of the UARs would have received any payment
from us in cash, these awards were recorded as a liability, and
we were required to remeasure the fair value of these awards at
each reporting date.
Partnership
Long-Term Incentive Plan
The Partnership has a long-term incentive plan that was adopted
by Exterran GP LLC, the general partner of the
Partnership’s general partner, in October 2006 for
employees, directors and consultants of the Partnership, us or
our respective affiliates. The long-term incentive plan
currently permits the grant of awards covering an aggregate of
1,035,378 common units, common unit options, restricted units
and phantom units. The long-term incentive plan is administered
by the board of directors of Exterran GP LLC or a committee
thereof (the “Plan Administrator”).
Unit options will have an exercise price that is not less than
the fair market value of a common unit on the date of grant and
will become exercisable over a period determined by the Plan
Administrator. Phantom units are notional units that entitle the
grantee to receive a common unit upon the vesting of the phantom
unit or, at the discretion of the Plan Administrator, cash equal
to the fair value of a common unit.
In October 2008, the Partnership’s long-term incentive plan
was amended to allow the Partnership the option to settle any
exercised unit options in a cash payment equal to the fair
market value of the number of common units that it would
otherwise issue upon exercise of such unit option less the
exercise price and any amounts required to meet withholding
requirements. This modification resulted in the portion of the
award we expect to settle in cash changing to a liability based
award. This did not impact our total compensation expense
recognized during 2008 due to the modification date fair value
and the December 31, 2008 fair value each being lower than
the grant date fair value of the affected unit options.
Partnership
Unit Options
The unit options vested and became exercisable on
January 1, 2009, and expired on December 31, 2009.
The following table presents unit option activity for the year
ended December 31, 2009 (remaining life in years):
|
Weighted
|
||||||||||||||||
|
Weighted
|
Average
|
Aggregate
|
||||||||||||||
|
Unit
|
Average
|
Remaining
|
Intrinsic
|
|||||||||||||
| Options | Exercise Price | Life | Value | |||||||||||||
|
Unit options outstanding, December 31, 2008
|
591,429 | $ | 23.77 | |||||||||||||
|
Cancelled
|
(10,714 | ) | 25.94 | |||||||||||||
|
Expired
|
(580,715 | ) | 23.73 | |||||||||||||
|
Unit options outstanding, December 31, 2009
|
— | $ | — | — | $ | — | ||||||||||
|
Unit options exercisable, December 31, 2009
|
— | $ | — | — | $ | — | ||||||||||
Partnership
Phantom Units
During the year ended December 31, 2009, the Partnership
granted 90,502 phantom units to officers and directors of
Exterran GP LLC and certain of our employees, which settle
33
1
/
3
%
on each of the first three anniversaries of the grant date.
F-42
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents phantom unit activity for the year
ended December 31, 2009 (remaining life in years):
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Grant-Date
|
||||||||
|
Phantom
|
Fair Value
|
|||||||
| Units | per Unit | |||||||
|
Phantom units outstanding, December 31, 2008
|
48,152 | $ | 30.98 | |||||
|
Granted
|
90,502 | 12.35 | ||||||
|
Vested
|
(34,576 | ) | 24.02 | |||||
|
Cancelled
|
(12,954 | ) | 17.39 | |||||
|
Phantom units outstanding, December 31, 2009
|
91,124 | $ | 17.06 | |||||
As of December 31, 2009, $0.9 million of unrecognized
compensation cost related to unvested phantom units is expected
to be recognized over the weighted-average period of
1.9 years.
| 19. | Retirement Benefit Plan |
Our 401(k) retirement plan provides for optional employee
contributions up to the Internal Revenue Service limitation and
discretionary employer matching contributions. Effective
July 1, 2009, we terminated the 401(k) company match. We
recorded matching contributions of $4.4 million,
$7.4 million and $4.7 million during 2009, 2008 and
2007, respectively.
| 20. | Related Party Transaction |
On August 20, 2007, Mr. Ernie L. Danner, a
non-employee director at the time, entered into a consulting
agreement with us pursuant to which we engaged Mr. Danner,
on a
month-to-month
basis, to provide consulting services. In consideration of the
services rendered, we paid Mr. Danner a consulting fee of
approximately $29,500 per month and reimbursed Mr. Danner
for expenses incurred on our behalf. The consulting agreement
terminated in February 2008. In October 2008, Mr. Danner
was appointed as our President and Chief Operating Officer. In
June 2009, Mr. Danner was appointed as our Chief Executive
Officer.
| 21. | Commitments and Contingencies |
Rent expense for 2009, 2008 and 2007 was approximately
$21.4 million, $21.4 million and $13.1 million,
respectively. Commitments for future minimum rental payments
with terms in excess of one year at December 31, 2009 are
as follows (in thousands):
| December 31, 2009 | ||||
|
2010
|
$ | 8,629 | ||
|
2011
|
6,121 | |||
|
2012
|
4,931 | |||
|
2013
|
3,963 | |||
|
2014
|
3,660 | |||
|
Thereafter
|
15,228 | |||
|
Total
|
$ | 42,532 | ||
F-43
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
We have issued the following guarantees that are not recorded on
our accompanying balance sheet (dollars in thousands):
|
Maximum Potential
|
||||||||
|
Undiscounted
|
||||||||
|
Payments as of
|
||||||||
| Term | December 31, 2009 | |||||||
|
Performance guarantees through letters of credit(1)
|
2010 – 2013 | $ | 295,819 | |||||
|
Standby letters of credit
|
2010 – 2011 | 21,524 | ||||||
|
Commercial letters of credit
|
2010 | 2,643 | ||||||
|
Bid bonds and performance bonds(1)
|
2010 – 2016 | 132,490 | ||||||
|
Maximum potential undiscounted payments
|
$ | 452,476 | ||||||
| (1) | We have issued guarantees to third parties to ensure performance of our obligations, some of which may be fulfilled by third parties. |
As part of our acquisition of Production Operators Corporation
in 2001, we may be required to make contingent payments of up to
$46 million to Schlumberger dependent on the realization by
us of certain U.S. federal tax benefits through the year
2016. To date, we have not realized any such benefits that would
require a payment to Schlumberger and do not anticipate
realizing any such benefits that would require a payment before
the year 2013.
See Note 3 for a discussion of the contingent purchase
price related to our acquisition of GLR.
See Notes 2 and 8 for a discussion of gain contingencies
related to our claims for assets and investments that were
expropriated in Venezuela.
Our business can be hazardous, involving unforeseen
circumstances such as uncontrollable flows of natural gas or
well fluids and fires or explosions. As is customary in our
industry, we review our safety equipment and procedures and
carry insurance against some, but not all, risks of our
business. Our insurance coverage includes property damage,
general liability and commercial automobile liability and other
coverage we believe is appropriate. In addition, we have a
minimal amount of insurance on our offshore assets. We believe
that our insurance coverage is customary for the industry and
adequate for our business; however, losses and liabilities not
covered by insurance would increase our costs.
Additionally, we are substantially self-insured for
worker’s compensation and employee group health claims in
view of the relatively high per-incident deductibles we absorb
under our insurance arrangements for these risks. Losses up to
the deductible amounts are estimated and accrued based upon
known facts, historical trends and industry averages.
In the ordinary course of business, we are involved in various
pending or threatened legal actions. While management is unable
to predict the ultimate outcome of these actions, we believe
that any ultimate liability arising from these actions will not
have a material adverse effect on our consolidated financial
position, results of operations or cash flows. Because of the
inherent uncertainty of litigation, however, we cannot provide
assurance that the resolution of any particular claim or
proceeding to which we are a party will not have a material
adverse effect on our consolidated financial position, results
of operations or cash flows for the period in which the
resolution occurs.
| 22. | Recent Accounting Developments |
In September 2006, the FASB issued guidance under ASC 820, which
provides a single definition of fair value, establishes a
framework for measuring fair value and requires additional
disclosures about the use of fair value to measure assets and
liabilities. ASC 820 is effective for financial statements
issued for fiscal years
F-44
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
beginning after November 15, 2007; however, in February
2008, the FASB deferred the effective date to fiscal years
beginning after November 15, 2008 for all nonfinancial
assets and liabilities, except those that are recognized or
disclosed in the financial statements at fair value on at least
an annual basis. Our adoption of the undeferred provisions of
ASC 820 on January 1, 2008 did not have a material impact
on our consolidated financial statements. Our adoption of the
deferred provisions of ASC 820 on January 1, 2009 did not
have a material impact on our consolidated financial statements.
In December 2007, the FASB issued guidance under ASC 805,
“Business Combinations” (“ASC 805”), which
requires that all assets, liabilities, contingent consideration,
contingencies and in-process research and development costs of
an acquired business be recorded at fair value at the
acquisition date; that acquisition costs generally be expensed
as incurred; that restructuring costs generally be expensed in
periods subsequent to the acquisition date; and that changes in
accounting for deferred tax asset valuation allowances and
acquired income tax uncertainties after the measurement period
impact income tax expense. ASC 805 is effective for business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008, with an exception for the
accounting for valuation allowances on deferred taxes and
acquired tax contingencies associated with acquisitions. After
the adoption of ASC 805, the provisions of ASC 805 will also
apply to adjustments made to valuation allowances on deferred
taxes and acquired tax contingencies associated with
acquisitions that closed prior to the effective date of ASC 805.
Our adoption of the provisions of ASC 805 on January 1,
2009 did not have a material impact on our consolidated
financial statements, although we are unable to predict its
impact on future potential acquisitions.
In December 2007, the FASB issued guidance under ASC 810, which
changes the accounting and reporting for minority interests such
that minority interests will be recharacterized as
noncontrolling interests and will be required to be reported as
a component of equity, and requires that purchases or sales of
equity interests that do not result in a change in control be
accounted for as equity transactions and, upon a loss of
control, requires the interest sold, as well as any interest
retained, to be recorded at fair value, with any gain or loss
recognized in earnings. ASC 810 is effective for fiscal years
beginning on or after December 15, 2008, with early
adoption prohibited. Our adoption of the provisions of ASC 810
on January 1, 2009 previously resulted in the
reclassification of noncontrolling interests into equity on our
consolidated balance sheets and other presentation changes to
separately disclose the controlling and noncontrolling interests
in various line items in our consolidated financial statements.
In March 2008, the FASB issued guidance under ASC 815,
“Derivatives and Hedging” (“ASC 815”), which
requires enhanced disclosures for derivative instruments,
including those used in hedging activities. The new guidance in
ASC 815 is effective for fiscal years beginning on or after
November 15, 2008. Our adoption of the new provisions of
ASC 815 on January 1, 2009 did not have a material impact
on our consolidated financial statements; however, we have
expanded our disclosures regarding derivatives.
In April 2008, the FASB issued guidance under ASC 350,
“Intangibles — Goodwill and Other”
(“ASC 350”), which amends the factors that should be
considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset.
The intent of the new guidance is to improve the consistency
between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of
the asset, in accordance with GAAP. The new guidance under ASC
350 requires an entity to disclose information for a recognized
intangible asset that enables users of the financial statements
to assess the extent to which the expected future cash flows
associated with the asset are affected by the entity’s
intent
and/or
ability to renew or extend the arrangement. The new guidance
under ASC 350 was effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. Our adoption of the new
provisions of ASC 350 on January 1, 2009 did not have a
material impact on our consolidated financial statements.
F-45
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In May 2008, the FASB issued guidance under ASC
470-20,
which requires that the liability and equity components of
convertible debt instruments that may be settled in cash upon
conversion (including partial cash settlement), unless the
embedded conversion option is required to be separately
accounted for as a derivative, be separately accounted for in a
manner that reflects an issuer’s nonconvertible debt
borrowing rate. ASC
470-20
is
effective for financial statements issued for fiscal years
beginning after December 15, 2008; early adoption is not
permitted. Retrospective application to all periods presented is
required except for instruments that were not outstanding during
any of the periods that will be presented in the annual
financial statements for the period of adoption but were
outstanding during an earlier period. Our adoption of the
provisions of ASC
470-20
on
January 1, 2009 did not have a material impact on our
financial statements. However, on issuance of our
4.25% Notes in June 2009, we applied the provisions of ASC
470-20.
As a result, we recorded a debt discount and a portion of the
proceeds from our 4.25% Notes issued in June 2009 was
allocated to equity. The amortization of the debt discount will
be recorded as an increase in interest expense over the life of
the notes. Accordingly, due to the application of ASC
470-20
we
will record interest expense in excess of the 4.25% interest
that we will pay.
In April 2009, the FASB issued guidance under ASC 825
“Financial Instruments”,
section 10-65-1
(“ASC-825-65-10”),
which requires disclosures about the fair value of financial
instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. Prior to
issuing
ASC 825-10-65-1,
fair values for financial instruments were only disclosed once a
year.
ASC 825-10-65-1
is effective for interim reporting periods ending after
June 15, 2009.
ASC 825-10-65-1
does not require disclosures for earlier periods presented for
comparative purposes at initial adoption, and, in periods after
initial adoption, requires comparative disclosures only for
periods ending after initial adoption. Our adoption of the
provisions of
ASC 825-10-65-1
on June 30, 2009 did not have a material impact on our
consolidated financial statements.
In June 2009, the FASB issued guidance under ASC
810-20
“Consolidation — Control of Partnerships and
Similar Entities (“ASC
810-20”).
ASC
810-20
requires an entity to perform an analysis to determine whether
the entity’s variable interest gives it a controlling
financial interest in a variable interest entity. This analysis
identifies the primary beneficiary of a variable interest entity
as the entity that has both the power to direct the activities
of the variable interest entity and the obligation to absorb
losses or the right to receive benefits from the variable
interest entity. Additionally, ASC
810-20
requires reassessments of whether an entity is the primary
beneficiary of a variable interest entity. ASC
810-20
is
effective for interim and annual periods ending after
November 15, 2009. Our adoption of ASC
810-20
on
December 31, 2009 did not have a material impact on our
consolidated financial statements.
In June 2009, the FASB issued guidance under ASC 105,
“Generally Accepted Accounting Principles”
(“ASC 105”), which identifies the sources of
accounting principles and the framework for selecting the
principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with
GAAP. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under federal securities
laws are also sources of authoritative GAAP for SEC registrants.
All guidance contained in the codification carries an equal
level of authority. The new guidance under ASC 105 is
effective for interim and annual periods ending after
September 15, 2009. Our adoption of the provisions of
ASC 105 on September 30, 2009 did not have a material
impact on our consolidated financial statements.
F-46
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 23. | Industry Segments and Geographic Information |
We manage our business segments primarily based upon the type of
product or service provided. We have four principal industry
segments: North America contract operations, international
contract operations, aftermarket services and fabrication. The
North America and international contract operations segments
primarily provide natural gas compression services, production
and processing equipment services and maintenance services to
meet specific customer requirements on Exterran-owned assets.
The aftermarket services segment provides a full range of
services to support the surface production, compression and
processing needs of customers, from parts sales and normal
maintenance services to full operation of a customer’s
owned assets. The fabrication segment involves (i) design,
engineering, installation, fabrication and sale of natural gas
compression units and accessories and equipment used in the
production, treating and processing of crude oil and natural gas
and (ii) engineering, procurement and construction services
primarily related to the manufacturing of critical process
equipment for refinery and petrochemical facilities, the
construction of tank farms and the construction of evaporators
and brine heaters for desalination plants.
We evaluate the performance of our segments based on gross
margin for each segment. Revenues include only sales to external
customers. We do not include intersegment sales when we evaluate
the performance of our segments. Our chief executive officer
does not review asset information by segment.
No individual customer accounted for more than 10% of our
consolidated revenues during any of the periods presented. The
following table presents sales and other financial information
by industry segment as of and for the years ended
December 31, 2009, 2008 and 2007. The results below for
2007 include 134 days of Universal’s operations from
the merger date of August 20, 2007 through
December 31, 2007 (in thousands):
|
North America
|
International
|
Reportable
|
||||||||||||||||||||||||||
|
Contract
|
Contract
|
Aftermarket
|
Segments
|
|||||||||||||||||||||||||
| Operations | Operations | Services | Fabrication | Total | Other(1) | Total(2) | ||||||||||||||||||||||
|
2009:
|
||||||||||||||||||||||||||||
|
Revenue from external customers
|
$ | 695,315 | $ | 391,995 | $ | 308,873 | $ | 1,319,418 | $ | 2,715,601 | $ | — | $ | 2,715,601 | ||||||||||||||
|
Gross margin(3)
|
396,601 | 242,742 | 62,987 | 213,252 | 915,582 | — | 915,582 | |||||||||||||||||||||
|
Total assets
|
2,357,751 | 988,257 | 148,548 | 720,482 | 4,215,038 | 1,019,372 | 5,234,410 | |||||||||||||||||||||
|
Capital expenditures
|
108,985 | 236,450 | 2,629 | 10,592 | 358,656 | 10,245 | 368,901 | |||||||||||||||||||||
|
2008:
|
||||||||||||||||||||||||||||
|
Revenue from external customers
|
$ | 790,573 | $ | 379,817 | $ | 364,157 | $ | 1,489,572 | $ | 3,024,119 | $ | — | $ | 3,024,119 | ||||||||||||||
|
Gross margin(3)
|
448,708 | 234,911 | 72,597 | 269,516 | 1,025,732 | — | 1,025,732 | |||||||||||||||||||||
|
Total assets
|
2,489,309 | 1,059,751 | 210,754 | 720,411 | 4,480,225 | 1,198,158 | 5,678,383 | |||||||||||||||||||||
|
Capital expenditures
|
253,232 | 145,653 | 5,632 | 25,093 | 429,610 | 36,126 | 465,736 | |||||||||||||||||||||
|
2007:
|
||||||||||||||||||||||||||||
|
Revenue from external customers
|
$ | 551,140 | $ | 239,115 | $ | 257,484 | $ | 1,378,049 | $ | 2,425,788 | $ | — | $ | 2,425,788 | ||||||||||||||
|
Gross margin(3)
|
318,902 | 147,428 | 54,667 | 233,469 | 754,466 | — | 754,466 | |||||||||||||||||||||
|
Total assets
|
3,647,354 | 937,462 | 170,089 | 649,342 | 5,404,247 | 1,075,172 | 6,479,419 | |||||||||||||||||||||
|
Capital expenditures
|
193,817 | 99,386 | — | 22,902 | 316,105 | 6,693 | 322,798 | |||||||||||||||||||||
F-47
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents assets from reportable segments to
total assets as of December 31, 2009, 2008 and 2007 (in
thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Assets from reportable segments
|
$ | 4,215,038 | $ | 4,480,225 | $ | 5,404,247 | ||||||
|
Other assets(1)
|
1,019,372 | 1,198,158 | 1,075,172 | |||||||||
|
Assets associated with discontinued operations
|
58,538 | 414,244 | 384,104 | |||||||||
|
Consolidated assets
|
$ | 5,292,948 | $ | 6,092,627 | $ | 6,863,523 | ||||||
The following table presents geographic data as of and for the
years ended December 31, 2009, 2008 and 2007 (in thousands):
| U.S. | International | Consolidated | ||||||||||
|
2009:
|
||||||||||||
|
Revenues from external customers
|
$ | 1,332,641 | $ | 1,382,960 | $ | 2,715,601 | ||||||
|
Property, plant and equipment, net
|
$ | 2,278,172 | $ | 1,126,182 | $ | 3,404,354 | ||||||
|
2008:
|
||||||||||||
|
Revenues from external customers
|
$ | 1,567,379 | $ | 1,456,740 | $ | 3,024,119 | ||||||
|
Property, plant and equipment, net
|
$ | 2,581,287 | $ | 854,935 | $ | 3,436,222 | ||||||
|
2007:
|
||||||||||||
|
Revenues from external customers
|
$ | 1,250,048 | $ | 1,175,740 | $ | 2,425,788 | ||||||
|
Property, plant and equipment, net
|
$ | 2,443,663 | $ | 862,640 | $ | 3,306,303 | ||||||
| (1) | Includes corporate related items. | |
| (2) | Totals exclude assets, capital expenditures and the operating results of discontinued operations. | |
| (3) | Gross margin, a non-GAAP financial measure, is reconciled to net income (loss) below. |
The following table reconciles net income (loss) to gross margin
(in thousands):
| Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Net income (loss)
|
$ | (545,463 | ) | $ | (935,076 | ) | $ | 40,876 | ||||
|
Selling, general and administrative
|
337,620 | 352,899 | 247,983 | |||||||||
|
Merger and integration expenses
|
— | 11,384 | 46,201 | |||||||||
|
Depreciation and amortization
|
352,785 | 330,886 | 232,492 | |||||||||
|
Fleet impairment
|
90,991 | 24,109 | 61,945 | |||||||||
|
Restructuring charges
|
20,326 | — | — | |||||||||
|
Goodwill impairment
|
150,778 | 1,148,371 | — | |||||||||
|
Interest expense
|
122,845 | 129,784 | 130,303 | |||||||||
|
Debt extinguishment charges
|
— | — | 70,150 | |||||||||
|
Equity in (income) loss of non-consolidated affiliates
|
91,154 | (23,974 | ) | (12,498 | ) | |||||||
|
Other (income) expense, net
|
(53,360 | ) | (3,118 | ) | (19,771 | ) | ||||||
|
Provision for income taxes
|
51,667 | 37,219 | 1,558 | |||||||||
|
(Income) loss from discontinued operations, net of tax
|
296,239 | (46,752 | ) | (44,773 | ) | |||||||
|
Gross margin
|
$ | 915,582 | $ | 1,025,732 | $ | 754,466 | ||||||
F-48
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 24. | CONSOLIDATING FINANCIAL STATEMENTS |
Exterran Energy Corp., a wholly owned subsidiary of Exterran
Holdings, Inc., is the issuer of our 4.75% Notes. Exterran
Holdings, Inc. agreed to fully and unconditionally guarantee the
obligations of Exterran Energy Corp. relating to our
4.75% Notes and as a result of this guarantee, we are
presenting the following condensed consolidating financial
information pursuant to
Rule 3-10
of
Regulation S-X
rather than the previously included narrative footnote
disclosure. These schedules are presented using the equity
method of accounting for all periods presented. Under this
method, investments in subsidiaries are recorded at cost and
adjusted for our share in the subsidiaries’ cumulative
results of operations, capital contributions and distributions
and other changes in equity. Elimination entries relate
primarily to the elimination of investments in subsidiaries and
associated intercompany balances and transactions.
F-49
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Balance Sheet
December 31, 2009
December 31, 2009
|
Subsidiary
|
Other
|
|||||||||||||||||||
| Parent | Issuer | Subsidiaries | Eliminations | Consolidation | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
Current assets
|
$ | 1,443 | $ | 3,950 | $ | 1,360,994 | $ | (5,378 | ) | $ | 1,361,009 | |||||||||
|
Current assets associated with discontinued operations
|
— | — | 58,152 | — | 58,152 | |||||||||||||||
|
Total current assets
|
1,443 | 3,950 | 1,419,146 | (5,378 | ) | 1,419,161 | ||||||||||||||
|
Property, plant and equipment, net
|
— | — | 3,404,354 | — | 3,404,354 | |||||||||||||||
|
Goodwill, net
|
— | — | 195,164 | — | 195,164 | |||||||||||||||
|
Investments in affiliates
|
2,012,809 | 2,164,402 | — | (4,177,211 | ) | — | ||||||||||||||
|
Other assets
|
944,087 | 922,712 | 257,103 | (1,850,019 | ) | 273,883 | ||||||||||||||
|
Long-term assets associated with discontinued operations
|
— | — | 386 | — | 386 | |||||||||||||||
|
Total long-term assets
|
2,956,896 | 3,087,114 | 3,857,007 | (6,027,230 | ) | 3,873,787 | ||||||||||||||
|
Total assets
|
$ | 2,958,339 | $ | 3,091,064 | $ | 5,276,153 | $ | (6,032,608 | ) | $ | 5,292,948 | |||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||
|
Current liabilities
|
$ | 18,808 | $ | 4,541 | $ | 797,162 | $ | (5,357 | ) | $ | 815,154 | |||||||||
|
Current liabilities associated with discontinued operations
|
— | — | 21,879 | — | 21,879 | |||||||||||||||
|
Total current liabilities
|
18,808 | 4,541 | 819,041 | (5,357 | ) | 837,033 | ||||||||||||||
|
Long-term debt
|
1,114,398 | 143,750 | 1,002,788 | — | 2,260,936 | |||||||||||||||
|
Intercompany payables
|
— | 929,964 | 881,714 | (1,811,678 | ) | — | ||||||||||||||
|
Other long-term liabilities
|
8,274 | — | 391,541 | (38,362 | ) | 361,453 | ||||||||||||||
|
Long-term liabilities associated with discontinued operations
|
— | — | 16,667 | — | 16,667 | |||||||||||||||
|
Total liabilities
|
1,141,480 | 1,078,255 | 3,111,751 | (1,855,397 | ) | 3,476,089 | ||||||||||||||
|
Total equity
|
1,816,859 | 2,012,809 | 2,164,402 | (4,177,211 | ) | 1,816,859 | ||||||||||||||
|
Total liabilities and equity
|
$ | 2,958,339 | $ | 3,091,064 | $ | 5,276,153 | $ | (6,032,608 | ) | $ | 5,292,948 | |||||||||
Condensed
Consolidating Balance Sheet
December 31, 2008
December 31, 2008
|
Subsidiary
|
Other
|
|||||||||||||||||||
| Parent | Issuer | Subsidiaries | Eliminations | Consolidation | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
Current assets
|
$ | 1,338 | $ | 4,067 | $ | 1,554,874 | $ | (4,327 | ) | $ | 1,555,952 | |||||||||
|
Current assets associated with discontinued operations
|
— | — | 139,178 | — | 139,178 | |||||||||||||||
|
Total current assets
|
1,338 | 4,067 | 1,694,052 | (4,327 | ) | 1,695,130 | ||||||||||||||
|
Property, plant and equipment, net
|
— | — | 3,436,222 | — | 3,436,222 | |||||||||||||||
|
Goodwill, net
|
— | — | 308,024 | — | 308,024 | |||||||||||||||
|
Investments in affiliates
|
2,465,280 | 2,615,671 | 83,933 | (5,080,951 | ) | 83,933 | ||||||||||||||
|
Other assets
|
845,927 | 831,634 | 285,431 | (1,668,740 | ) | 294,252 | ||||||||||||||
|
Long-term assets associated with discontinued operations
|
— | — | 275,066 | — | 275,066 | |||||||||||||||
|
Total long-term assets
|
3,311,207 | 3,447,305 | 4,388,676 | (6,749,691 | ) | 4,397,497 | ||||||||||||||
|
Total assets
|
$ | 3,312,545 | $ | 3,451,372 | $ | 6,082,728 | $ | (6,754,018 | ) | $ | 6,092,627 | |||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||
|
Current liabilities
|
$ | 7,552 | $ | 4,337 | $ | 872,962 | $ | (5,262 | ) | $ | 879,589 | |||||||||
|
Current liabilities associated with discontinued operations
|
— | — | 37,632 | — | 37,632 | |||||||||||||||
|
Total current liabilities
|
7,552 | 4,337 | 910,594 | (5,262 | ) | 917,221 | ||||||||||||||
|
Long-term debt
|
1,069,591 | 143,750 | 1,298,987 | — | 2,512,328 | |||||||||||||||
|
Intercompany payables
|
— | 838,005 | 789,755 | (1,627,760 | ) | — | ||||||||||||||
|
Other long-term liabilities
|
7,325 | — | 412,924 | (40,045 | ) | 380,204 | ||||||||||||||
|
Long-term liabilities associated with discontinued operations
|
— | — | 54,797 | — | 54,797 | |||||||||||||||
|
Total liabilities
|
1,084,468 | 986,092 | 3,467,057 | (1,673,067 | ) | 3,864,550 | ||||||||||||||
|
Total equity
|
2,228,077 | 2,465,280 | 2,615,671 | (5,080,951 | ) | 2,228,077 | ||||||||||||||
|
Total liabilities and equity
|
$ | 3,312,545 | $ | 3,451,372 | $ | 6,082,728 | $ | (6,754,018 | ) | $ | 6,092,627 | |||||||||
F-50
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Statement of Operations
Year Ended December 31, 2009
Year Ended December 31, 2009
|
Subsidiary
|
Other
|
|||||||||||||||||||
| Parent | Issuer | Subsidiaries | Eliminations | Consolidation | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
Revenues
|
$ | — | $ | — | $ | 2,715,601 | $ | — | $ | 2,715,601 | ||||||||||
|
Costs of sales (excluding depreciation and amortization expense)
|
— | — | 1,800,019 | — | 1,800,019 | |||||||||||||||
|
Selling, general and administrative
|
— | — | 337,620 | — | 337,620 | |||||||||||||||
|
Depreciation and amortization
|
— | — | 352,785 | — | 352,785 | |||||||||||||||
|
Fleet impairment
|
— | — | 90,991 | — | 90,991 | |||||||||||||||
|
Restructuring charges
|
— | — | 20,326 | — | 20,326 | |||||||||||||||
|
Goodwill impairment
|
— | — | 150,778 | — | 150,778 | |||||||||||||||
|
Interest expense
|
51,473 | 6,814 | 64,558 | — | 122,845 | |||||||||||||||
|
Other (income) expense:
|
||||||||||||||||||||
|
Intercompany charges, net
|
(16,847 | ) | (3,764 | ) | 20,611 | — | — | |||||||||||||
|
Equity in (income) loss of affiliates
|
527,140 | 525,100 | — | (1,052,240 | ) | — | ||||||||||||||
|
Equity in (income) loss of non-consolidating affiliates
|
— | — | 91,154 | — | 91,154 | |||||||||||||||
|
Other, net
|
40 | — | (53,400 | ) | — | (53,360 | ) | |||||||||||||
|
Income (loss) before income taxes
|
(561,806 | ) | (528,150 | ) | (159,841 | ) | 1,052,240 | (197,557 | ) | |||||||||||
|
Provision for (benefit from) income taxes
|
(12,399 | ) | (1,010 | ) | 65,076 | — | 51,667 | |||||||||||||
|
Income (loss) from continuing operations
|
(549,407 | ) | (527,140 | ) | (224,917 | ) | 1,052,240 | (249,224 | ) | |||||||||||
|
Income (loss) from discontinued operations, net of tax
|
— | — | (296,239 | ) | — | (296,239 | ) | |||||||||||||
|
Net income (loss)
|
(549,407 | ) | (527,140 | ) | (521,156 | ) | 1,052,240 | (545,463 | ) | |||||||||||
|
Less: Net income attributable to the noncontrolling interest
|
— | — | (3,944 | ) | — | (3,944 | ) | |||||||||||||
|
Net income (loss) attributable to Exterran stockholders
|
$ | (549,407 | ) | $ | (527,140 | ) | $ | (525,100 | ) | $ | 1,052,240 | $ | (549,407 | ) | ||||||
Condensed
Consolidating Statement of Operations
Year Ended December 31, 2008
Year Ended December 31, 2008
|
Subsidiary
|
Other
|
|||||||||||||||||||
| Parent | Issuer | Subsidiaries | Eliminations | Consolidation | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
Revenues
|
$ | — | $ | — | $ | 3,024,119 | $ | — | $ | 3,024,119 | ||||||||||
|
Costs of sales (excluding depreciation and amortization expense)
|
— | — | 1,998,387 | — | 1,998,387 | |||||||||||||||
|
Selling, general and administrative
|
— | — | 352,899 | — | 352,899 | |||||||||||||||
|
Merger and integration expenses
|
— | — | 11,384 | — | 11,384 | |||||||||||||||
|
Depreciation and amortization
|
— | — | 330,886 | — | 330,886 | |||||||||||||||
|
Fleet impairment
|
— | — | 24,109 | — | 24,109 | |||||||||||||||
|
Goodwill impairment
|
— | — | 1,148,371 | — | 1,148,371 | |||||||||||||||
|
Interest expense
|
52,118 | 8,760 | 68,906 | — | 129,784 | |||||||||||||||
|
Other (income) expense:
|
||||||||||||||||||||
|
Intercompany charges, net
|
(38,922 | ) | (558 | ) | 39,480 | — | — | |||||||||||||
|
Equity in (income) loss of affiliates
|
936,456 | 933,262 | — | (1,869,718 | ) | — | ||||||||||||||
|
Equity in (income) loss of non-consolidating affiliates
|
— | — | (23,974 | ) | — | (23,974 | ) | |||||||||||||
|
Other, net
|
40 | — | (3,158 | ) | — | (3,118 | ) | |||||||||||||
|
Income (loss) before income taxes
|
(949,692 | ) | (941,464 | ) | (923,171 | ) | 1,869,718 | (944,609 | ) | |||||||||||
|
Provision for (benefit from) income taxes
|
(2,343 | ) | (5,008 | ) | 44,570 | — | 37,219 | |||||||||||||
|
Income (loss) from continuing operations
|
(947,349 | ) | (936,456 | ) | (967,741 | ) | 1,869,718 | (981,828 | ) | |||||||||||
|
Income (loss) from discontinued operations, net of tax
|
— | — | 46,752 | — | 46,752 | |||||||||||||||
|
Net income (loss)
|
(947,349 | ) | (936,456 | ) | (920,989 | ) | 1,869,718 | (935,076 | ) | |||||||||||
|
Less: Net income attributable to the noncontrolling interest
|
— | — | (12,273 | ) | — | (12,273 | ) | |||||||||||||
|
Net income (loss) attributable to Exterran stockholders
|
$ | (947,349 | ) | $ | (936,456 | ) | $ | (933,262 | ) | $ | 1,869,718 | $ | (947,349 | ) | ||||||
F-51
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Statement of Operations
Year Ended December 31, 2007
Year Ended December 31, 2007
|
Subsidiary
|
Other
|
|||||||||||||||||||
| Parent | Issuer | Subsidiaries | Eliminations | Consolidation | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
Revenues
|
$ | — | $ | — | $ | 2,425,788 | $ | — | $ | 2,425,788 | ||||||||||
|
Costs of sales (excluding depreciation and amortization expense)
|
— | — | 1,671,322 | — | 1,671,322 | |||||||||||||||
|
Selling, general and administrative
|
— | — | 247,983 | — | 247,983 | |||||||||||||||
|
Merger and integration expenses
|
— | — | 46,201 | — | 46,201 | |||||||||||||||
|
Depreciation and amortization
|
— | — | 232,492 | — | 232,492 | |||||||||||||||
|
Fleet impairment
|
— | — | 61,945 | — | 61,945 | |||||||||||||||
|
Interest expense
|
22,070 | 11,019 | 97,214 | — | 130,303 | |||||||||||||||
|
Debt extinguishment charges
|
— | — | 70,150 | — | 70,150 | |||||||||||||||
|
Other (income) expense:
|
||||||||||||||||||||
|
Intercompany charges, net
|
(15,942 | ) | (6,828 | ) | 22,770 | — | — | |||||||||||||
|
Equity in (income) loss of affiliates
|
(38,623 | ) | (43,627 | ) | — | 82,250 | — | |||||||||||||
|
Equity in (income) loss of non-consolidating affiliates
|
— | — | (12,498 | ) | — | (12,498 | ) | |||||||||||||
|
Other, net
|
40 | — | (19,811 | ) | — | (19,771 | ) | |||||||||||||
|
Income (loss) before income taxes
|
32,455 | 39,436 | 8,020 | (82,250 | ) | (2,339 | ) | |||||||||||||
|
Provision for (benefit from) income taxes
|
(2,114 | ) | 813 | 2,859 | — | 1,558 | ||||||||||||||
|
Income (loss) from continuing operations
|
34,569 | 38,623 | 5,161 | (82,250 | ) | (3,897 | ) | |||||||||||||
|
Income (loss) from discontinued operations, net of tax
|
— | — | 44,773 | — | 44,773 | |||||||||||||||
|
Net income (loss)
|
34,569 | 38,623 | 49,934 | (82,250 | ) | 40,876 | ||||||||||||||
|
Less: Net income attributable to the noncontrolling interest
|
— | — | (6,307 | ) | — | (6,307 | ) | |||||||||||||
|
Net income (loss) attributable to Exterran stockholders
|
$ | 34,569 | $ | 38,623 | $ | 43,627 | $ | (82,250 | ) | $ | 34,569 | |||||||||
F-52
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Statement of Cash Flows
Year Ended December 31, 2009
Year Ended December 31, 2009
|
Subsidiary
|
Other
|
|||||||||||||||||||
| Parent | Issuer | Subsidiaries | Eliminations | Consolidation | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||||||
|
Net cash provided by (used in) continuing operations
|
$ | (11,569 | ) | $ | (1,001 | ) | $ | 489,378 | $ | — | $ | 476,808 | ||||||||
|
Net cash provided by discontinued operations
|
— | — | 710 | — | 710 | |||||||||||||||
|
Net cash provided by (used in) operating activities
|
(11,569 | ) | (1,001 | ) | 490,088 | — | 477,518 | |||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Capital expenditures
|
— | — | (368,901 | ) | — | (368,901 | ) | |||||||||||||
|
Proceeds from sale of property, plant and equipment
|
— | — | 69,097 | — | 69,097 | |||||||||||||||
|
Proceeds from sale of business
|
— | — | 5,642 | — | 5,642 | |||||||||||||||
|
Return of investments in non-consolidated affiliates
|
— | — | 3,139 | — | 3,139 | |||||||||||||||
|
Increase in restricted cash
|
— | — | (7,308 | ) | — | (7,308 | ) | |||||||||||||
|
Investment in consolidated subsidiaries
|
53,180 | 24,181 | — | (77,361 | ) | — | ||||||||||||||
|
Cash invested in non-consolidated affiliates
|
— | — | (1,959 | ) | — | (1,959 | ) | |||||||||||||
|
Net cash used in continuing operations
|
53,180 | 24,181 | (300,290 | ) | (77,361 | ) | (300,290 | ) | ||||||||||||
|
Net cash used in discontinued operations
|
— | — | (710 | ) | — | (710 | ) | |||||||||||||
|
Net cash used in investing activities
|
53,180 | 24,181 | (301,000 | ) | (77,361 | ) | (301,000 | ) | ||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Borrowings/repayments on revolving credit facilities, net
|
(200,661 | ) | — | 3,750 | — | (196,911 | ) | |||||||||||||
|
Borrowings/proceeds from debt
|
355,000 | — | 30,000 | — | 385,000 | |||||||||||||||
|
Repayments of debt
|
(20,000 | ) | — | (330,059 | ) | — | (350,059 | ) | ||||||||||||
|
Payments for debt issue costs
|
(19,704 | ) | — | 7,411 | — | (12,293 | ) | |||||||||||||
|
Stock-based compensation excess tax benefit
|
— | — | 119 | — | 119 | |||||||||||||||
|
Proceeds from warrants sold
|
53,138 | — | — | — | 53,138 | |||||||||||||||
|
Payment for call options
|
(89,408 | ) | — | — | — | (89,408 | ) | |||||||||||||
|
Proceeds from stock issued pursuant to our employee stock
purchase plan
|
2,845 | — | — | — | 2,845 | |||||||||||||||
|
Purchases of treasury stock
|
(976 | ) | — | — | — | (976 | ) | |||||||||||||
|
Distribution to noncontrolling partners in the Partnership
|
— | — | (15,459 | ) | — | (15,459 | ) | |||||||||||||
|
Capital contribution (distribution), net
|
— | (53,180 | ) | (24,181 | ) | 77,361 | — | |||||||||||||
|
Borrowings (repayments) between subsidiaries, net
|
(121,959 | ) | 30,000 | 91,959 | — | — | ||||||||||||||
|
Net cash provided by (used in) financing activities
|
(41,725 | ) | (23,180 | ) | (236,460 | ) | 77,361 | (224,004 | ) | |||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
— | — | 7,325 | — | 7,325 | |||||||||||||||
|
Net decrease in cash and cash equivalents
|
(114 | ) | — | (40,047 | ) | — | (40,161 | ) | ||||||||||||
|
Cash and cash equivalents at beginning of year
|
163 | — | 123,743 | — | 123,906 | |||||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 49 | $ | — | $ | 83,696 | $ | — | $ | 83,745 | ||||||||||
F-53
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Statement of Cash Flows
Year Ended December 31, 2008
Year Ended December 31, 2008
|
Subsidiary
|
Other
|
|||||||||||||||||||
| Parent | Issuer | Subsidiaries | Eliminations | Consolidation | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||||||
|
Net cash provided by (used in) continuing operations
|
$ | (10,576 | ) | $ | (7,721 | ) | $ | 460,818 | $ | — | $ | 442,521 | ||||||||
|
Net cash provided by discontinued operations
|
— | — | 43,534 | — | 43,534 | |||||||||||||||
|
Net cash provided by (used in) operating activities
|
(10,576 | ) | (7,721 | ) | 504,352 | — | 486,055 | |||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Capital expenditures
|
— | — | (465,736 | ) | — | (465,736 | ) | |||||||||||||
|
Proceeds from sale of property, plant and equipment
|
— | — | 56,574 | — | 56,574 | |||||||||||||||
|
Cash paid for business acquisitions, net of cash acquired
|
— | — | (133,590 | ) | — | (133,590 | ) | |||||||||||||
|
Investment in consolidated subsidiaries
|
11,069 | 18,790 | — | (29,859 | ) | — | ||||||||||||||
|
Decrease in restricted cash
|
— | — | 1,570 | — | 1,570 | |||||||||||||||
|
Net cash used in continuing operations
|
11,069 | 18,790 | (541,182 | ) | (29,859 | ) | (541,182 | ) | ||||||||||||
|
Net cash used in discontinued operations
|
— | — | (41,719 | ) | — | (41,719 | ) | |||||||||||||
|
Net cash used in investing activities
|
11,069 | 18,790 | (582,901 | ) | (29,859 | ) | (582,901 | ) | ||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Borrowings on revolving credit facilities, net
|
89,591 | — | 64,250 | — | 153,841 | |||||||||||||||
|
Borrowings/proceeds from debt
|
— | — | 217,500 | — | 217,500 | |||||||||||||||
|
Repayments of debt
|
— | (192,000 | ) | (837 | ) | — | (192,837 | ) | ||||||||||||
|
Payments for debt issue costs
|
(791 | ) | — | 109 | — | (682 | ) | |||||||||||||
|
Proceeds from stock options exercised
|
5,150 | — | — | — | 5,150 | |||||||||||||||
|
Stock-based compensation excess tax benefit
|
— | — | 14,763 | — | 14,763 | |||||||||||||||
|
Proceeds from stock issued pursuant to our employee stock
purchase plan
|
4,113 | — | — | — | 4,113 | |||||||||||||||
|
Purchases of treasury stock
|
(100,961 | ) | — | — | — | (100,961 | ) | |||||||||||||
|
Distribution to noncontrolling partners in the Partnership
|
— | — | (14,489 | ) | — | (14,489 | ) | |||||||||||||
|
Capital contribution (distribution), net
|
— | (11,069 | ) | (18,790 | ) | 29,859 | — | |||||||||||||
|
Borrowings (repayments) between subsidiaries, net
|
1,771 | 192,000 | (193,771 | ) | — | — | ||||||||||||||
|
Net cash provided by financing activities
|
(1,127 | ) | (11,069 | ) | 68,735 | 29,859 | 86,398 | |||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
— | — | (10,447 | ) | — | (10,447 | ) | |||||||||||||
|
Net decrease in cash and cash equivalents
|
(634 | ) | — | (20,261 | ) | — | (20,895 | ) | ||||||||||||
|
Cash and cash equivalents at beginning of year
|
797 | — | 144,004 | — | 144,801 | |||||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 163 | $ | — | $ | 123,743 | $ | — | $ | 123,906 | ||||||||||
F-54
Table of Contents
EXTERRAN
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed
Consolidating Statement of Cash Flows
Year Ended December 31, 2007
Year Ended December 31, 2007
|
Subsidiary
|
Other
|
|||||||||||||||||||
| Parent | Issuer | Subsidiaries | Eliminations | Consolidation | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||||||
|
Net cash provided by (used in) continuing operations
|
$ | 2,123 | $ | (3,723 | ) | $ | 210,920 | $ | — | $ | 209,320 | |||||||||
|
Net cash provided by discontinued operations
|
— | — | 29,392 | — | 29,392 | |||||||||||||||
|
Net cash provided by (used in) operating activities
|
2,123 | (3,723 | ) | 240,312 | — | 238,712 | ||||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Capital expenditures
|
— | — | (322,798 | ) | — | (322,798 | ) | |||||||||||||
|
Proceeds from sale of property, plant and equipment
|
— | — | 36,277 | — | 36,277 | |||||||||||||||
|
Cash paid for business acquisitions, net of cash acquired
|
— | — | 25,873 | — | 25,873 | |||||||||||||||
|
Increase in restricted cash
|
— | — | (9,133 | ) | — | (9,133 | ) | |||||||||||||
|
Investment in consolidated subsidiaries
|
(27,651 | ) | (55,982 | ) | — | 83,633 | — | |||||||||||||
|
Cash invested in non-consolidated affiliates
|
— | — | (3,095 | ) | — | (3,095 | ) | |||||||||||||
|
Net cash used in continuing operations
|
(27,651 | ) | (55,982 | ) | (272,876 | ) | 83,633 | (272,876 | ) | |||||||||||
|
Net cash used in discontinued operations
|
— | — | (29,392 | ) | — | (29,392 | ) | |||||||||||||
|
Net cash used in investing activities
|
(27,651 | ) | (55,982 | ) | (302,268 | ) | 83,633 | (302,268 | ) | |||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Borrowings on revolving credit facilities, net
|
160,000 | — | 6,000 | — | 166,000 | |||||||||||||||
|
Borrowings/proceeds from debt
|
800,000 | — | 800,000 | — | 1,600,000 | |||||||||||||||
|
Repayments of debt
|
— | (550,000 | ) | (1,001,852 | ) | — | (1,551,852 | ) | ||||||||||||
|
Payments for debt issue costs
|
(21,172 | ) | — | 8,077 | — | (13,095 | ) | |||||||||||||
|
Proceeds from stock options exercised
|
27,271 | — | — | — | 27,271 | |||||||||||||||
|
Stock-based compensation excess tax benefit
|
— | — | 10,737 | — | 10,737 | |||||||||||||||
|
Purchases of treasury stock
|
(99,998 | ) | — | — | — | (99,998 | ) | |||||||||||||
|
Distribution to noncontrolling partners in the Partnership
|
— | — | (3,336 | ) | — | (3,336 | ) | |||||||||||||
|
Capital contribution (distribution), net
|
— | 27,651 | 55,982 | (83,633 | ) | — | ||||||||||||||
|
Borrowings (repayments) between subsidiaries, net
|
(839,776 | ) | 582,054 | 257,722 | — | — | ||||||||||||||
|
Net cash provided by (used in) financing activities
|
26,325 | 59,705 | 133,330 | (83,633 | ) | 135,727 | ||||||||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
— | — | 2,769 | — | 2,769 | |||||||||||||||
|
Net increase in cash and cash equivalents
|
797 | — | 74,143 | — | 74,940 | |||||||||||||||
|
Cash and cash equivalents at beginning of year
|
— | — | 69,861 | — | 69,861 | |||||||||||||||
|
Cash and cash equivalents at end of year
|
$ | 797 | $ | — | $ | 144,004 | $ | — | $ | 144,801 | ||||||||||
F-55
Table of Contents
EXTERRAN
HOLDINGS, INC.
SELECTED QUARTERLY UNAUDITED FINANCIAL DATA
SELECTED QUARTERLY UNAUDITED FINANCIAL DATA
In the opinion of management, the summarized quarterly financial
data below (in thousands, except per share amounts) contains all
appropriate adjustments, all of which are normally recurring
adjustments, considered necessary to present fairly our
financial position and the results of operations for the
respective periods (in thousands, except per share amounts):
| March 31 | June 30 | September 30 | December 31 | |||||||||||||
|
2009(1):
|
||||||||||||||||
|
Revenue from external customers
|
$ | 703,212 | $ | 677,968 | $ | 679,706 | $ | 654,715 | ||||||||
|
Gross profit(3)
|
167,620 | 67,158 | 153,440 | 128,352 | ||||||||||||
|
Net income (loss) attributable to Exterran stockholders
|
(59,414 | ) | (530,770 | ) | 18,192 | 22,585 | ||||||||||
|
Income (loss) per common share attributable to Exterran
stockholders:
|
||||||||||||||||
|
Basic
|
$ | (0.97 | ) | $ | (8.66 | ) | $ | 0.30 | $ | 0.37 | ||||||
|
Diluted
|
(0.97 | ) | (8.66 | ) | 0.30 | 0.37 | ||||||||||
|
2008(2):
|
||||||||||||||||
|
Revenue from external customers
|
$ | 702,586 | $ | 773,376 | $ | 756,258 | $ | 791,899 | ||||||||
|
Gross profit(3)
|
189,203 | 158,555 | 191,184 | 189,141 | ||||||||||||
|
Net income (loss) attributable to Exterran stockholders
|
49,371 | 21,660 | 37,033 | (1,055,413 | ) | |||||||||||
|
Income (loss) per common share attributable to Exterran
stockholders:
|
||||||||||||||||
|
Basic
|
$ | 0.76 | $ | 0.33 | $ | 0.57 | $ | (16.70 | ) | |||||||
|
Diluted
|
0.73 | 0.33 | 0.57 | (16.70 | ) | |||||||||||
| (1) | During the fourth quarter of 2009, we recorded a pre-tax gain of approximately $20.8 million gain on the sale of our investment in the subsidiary that owns the barge mounted processing plant and other related assets used on the Cawthorne Channel Project and a $50.0 million insurance recovery on the loss attributable to the expropriation of our assets and operations in Venezuela. During the second quarter of 2009, we recorded a $150.8 million goodwill impairment charge, a $86.7 million fleet asset impairment charge and a $379.7 million loss attributable to the expropriation of our assets and operations in Venezuela. | |
| (2) | During the fourth quarter of 2008, we recorded a $1,148.4 million goodwill impairment charge, a $21.6 million fleet asset impairment charge and a benefit of $14.1 million for a recovery of previously expensed cost overruns on a loss contract. During the second quarter of 2008, we recorded $31.8 million in total cost overruns on two projects in the Eastern Hemisphere. | |
| (3) | Gross profit is defined as revenue less cost of sales, direct depreciation and amortization expense and fleet impairment charges. |
F-56
Table of Contents
SCHEDULE II
EXTERRAN HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
EXTERRAN HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
| Additions | ||||||||||||||||||||
|
Balance at
|
Charged to
|
Charged to
|
Balance at
|
|||||||||||||||||
|
Beginning
|
Costs and
|
Other
|
End of
|
|||||||||||||||||
|
Description
|
of Period | Expenses | Accounts | Deductions | Period | |||||||||||||||
|
Allowance for doubtful accounts deducted from accounts
receivable in the balance sheet
|
||||||||||||||||||||
|
2009
|
$ | 13,738 | $ | 5,929 | $ | — | $ | 4,325 | (2) | $ | 15,342 | |||||||||
|
2008
|
10,441 | 4,043 | — | 746 | (2) | 13,738 | ||||||||||||||
|
2007
|
4,994 | 2,189 | 5,063 | (1) | 1,805 | (2) | 10,441 | |||||||||||||
|
Allowance for obsolete and slow moving inventory deducted from
inventories in the balance sheet
|
||||||||||||||||||||
|
2009
|
$ | 16,348 | $ | 5,314 | $ | — | $ | 3,294 | (3) | $ | 18,368 | |||||||||
|
2008
|
19,568 | 2,146 | — | 5,366 | (3) | 16,348 | ||||||||||||||
|
2007
|
9,725 | 672 | 11,003 | (1) | 1,832 | (3) | 19,568 | |||||||||||||
|
Allowance for deferred tax assets not expected to be realized
|
||||||||||||||||||||
|
2009
|
$ | 15,196 | $ | 6,952 | $ | — | $ | 2,115 | (4) | $ | 20,033 | |||||||||
|
2008
|
30,863 | 12,018 | — | 27,685 | (4) | 15,196 | ||||||||||||||
|
2007
|
46,996 | 5,243 | 1,173 | (1) | 22,549 | (4) | 30,863 | |||||||||||||
| (1) | Amount represents increase in allowances related to the purchase price allocations for the Universal merger. | |
| (2) | Uncollectible accounts written off, net of recoveries. | |
| (3) | Obsolete inventory written off at cost, net of value received. | |
| (4) | Reflects expected realization of deferred tax assets and amounts credited to other accounts for stock-based compensation excess tax benefits, expiring net operating losses and changes in tax rates. |
S-1
Table of Contents
EXHIBIT INDEX
|
Exhibit
|
Description
|
|||
| 2 | .1 | Contribution, Conveyance and Assumption Agreement, dated June 25, 2008, by and among Exterran Holdings, Inc., Hanover Compressor Company, Hanover Compression General Holdings, LLC, Exterran Energy Solutions, L.P., Exterran ABS 2007 LLC, Exterran ABS Leasing 2007 LLC, EES Leasing LLC, EXH GP LP LLC, Exterran GP LLC, EXH MLP LP LLC, Exterran General Partner, L.P., EXLP Operating LLC, EXLP Leasing LLC and Exterran Partners, L.P., incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed June 26, 2008 | ||
| 2 | .2 | Contribution, Conveyance and Assumption Agreement, dated October 2, 2009, by and among Exterran Holdings, Inc., Exterran Energy Corp., Exterran General Holdings LLC, Exterran Energy Solutions, L.P., EES Leasing LLC, EXH GP LP LLC, Exterran GP LLC, EXH MLP LP LLC, Exterran General Partner, L.P., EXLP Operating LLC, EXLP Leasing LLC and Exterran Partners, L.P., incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed October 5, 2009 | ||
| 3 | .1 | Restated Certificate of Incorporation of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed August 20, 2007 | ||
| 3 | .2 | Second Amended and Restated Bylaws of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 | ||
| 4 | .1 | Eighth Supplemental Indenture, dated August 20, 2007, by and between Hanover Compressor Company, Exterran Holdings, Inc., and U.S. Bank National Association, as Trustee, for the 4.75% Convertible Senior Notes due 2014, incorporated by reference to Exhibit 10.15 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 4 | .2 | Indenture, dated as of June 10, 2009, between Exterran Holdings, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed June 16, 2009 | ||
| 4 | .3 | Supplemental Indenture, dated as of June 10, 2009, between Exterran Holdings, Inc. and Wells Fargo Bank, National Association, as trustee, incorporated by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K filed June 16, 2009 | ||
| 10 | .1 | Senior Secured Credit Agreement, dated August 20, 2007, by and among Exterran Holdings, Inc., as the U.S. Borrower and a Canadian Guarantor, Exterran Canada, Limited Partnership, as the Canadian Borrower, Wachovia Bank, National Association, individually and as U.S. Administrative Agent, Wachovia Capital Finance Corporation (Canada), individually and as Canadian Administrative Agent, JPMorgan Chase Bank, N.A., individually and as Syndication Agent; Wachovia Capital Markets, LLC and J.P. Morgan Securities Inc. as the Joint Lead Arrangers and Joint Book Runners, Bank of America, N.A., Calyon New York Branch and Fortis Capital Corp., as the Documentation Agents, and each of the lenders parties thereto or which becomes a signatory thereto (the “Credit Agreement”), incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .2 | U.S. Guaranty Agreement, dated as of August 20, 2007, made by Exterran, Inc., EI Leasing LLC, UCI MLP LP LLC, Exterran Energy Solutions, L.P. and each of the subsidiary guarantors that become a party thereto from time to time, as guarantors, in favor of Wachovia Bank, National Association, as the U.S. Administrative Agent for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .3 | U.S. Pledge Agreement made by Exterran Holdings, Inc., Exterran, Inc., Exterran Energy Solutions, L.P., Hanover Compression General Holdings LLC, Hanover HL, LLC, Enterra Compression Investment Company, UCI MLP LP LLC, UCO General Partner, LP, UCI GP LP LLC, and UCO GP, LLC, and each of the subsidiaries that become a party thereto from time to time, as the Pledgors, in favor of Wachovia Bank, National Association, as U.S. Administrative Agent for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .4 | U.S. Collateral Agreement, dated as of August 20, 2007, made by Exterran Holdings, Inc., Exterran, Inc., Exterran Energy Solutions, L.P., EI Leasing LLC, UCI MLP LP LLC and each of the subsidiaries that become a party thereto from time to time, as grantors, in favor of Wachovia Bank, National Association, as U.S. Administrative Agent, for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
Table of Contents
|
Exhibit
|
Description
|
|||
| 10 | .5 | Canadian Collateral Agreement, dated as of August 20, 2007 made by Exterran Canada, Limited Partnership, together with any other significant Canadian subsidiary that executes a joinder agreement and becomes a party to the Credit Agreement, in favor of Wachovia Capital Finance Corporation (Canada), as Canadian Administrative Agent, for the Canadian Tranche Revolving Lenders under the Credit Agreement, incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .6 | Indenture, dated August 20, 2007, by and between Exterran ABS 2007 LLC, as Issuer, Exterran ABS Leasing 2007 LLC, as Exterran ABS Lessor, and Wells Fargo Bank, National Association, as Indenture Trustee, with respect to the $1,000,000,000 asset-backed securitization facility consisting of $1,000,000,000 of Series 2007-1 Notes (the “Indenture”), incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .7 | Series 2007-1 Supplement, dated as of August 20, 2007, to the Indenture, incorporated by reference to Exhibit 10.9 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .8 | Guaranty, dated as of August 20, 2007, issued by Exterran Holdings, Inc. for the benefit of Exterran ABS 2007 LLC as Issuer, Exterran ABS Leasing 2007 LLC, as Equipment Lessor and Wells Fargo Bank, National Association, , as Indenture Trustee, incorporated by reference to Exhibit 10.10 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .9 | Management Agreement, dated as of August 20, 2007, by and between Exterran, Inc., as Manager, Exterran ABS Leasing 2007 LLC as ABS Lessor and Exterran ABS 2007 LLC, as Issuer, incorporated by reference to Exhibit 10.11 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .10 | Intercreditor and Collateral Agency Agreement, dated as of August 20, 2007, by and among Exterran, Inc., in its individual capacity and as Manager, Exterran ABS 2007 LLC, as Issuer, Wells Fargo Bank, National Association, as Indenture Trustee, Wachovia Bank, National Association, as Bank Agent, various financial institutions as lenders thereto and JP Morgan Chase Bank, N.A., in its individual capacity and as Intercreditor Collateral Agent, incorporated by reference to Exhibit 10.12 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .11 | Intercreditor and Collateral Agency Agreement, dated as of August 20, 2007, by and among Exterran Energy Solutions, L.P., in its individual capacity and as Manager, Exterran ABS 2007 LLC, as Issuer, Wells Fargo Bank, National Association, as Indenture Trustee, Wachovia Bank, National Association, as Bank Agent, various financial institutions as lenders thereto and Wells Fargo Bank, National Association, in its individual capacity and as Intercreditor Collateral Agent, incorporated by reference to Exhibit 10.13 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .12 | Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and J.P. Morgan Chase Bank, National Association, London Branch, as dealer, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .13 | Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Bank of America, N.A., as dealer, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .14 | Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Wachovia Bank, National Association, as dealer, incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .15 | Call Option Transaction Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Credit Suisse International, as dealer, incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .16 | Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and J.P. Morgan Chase Bank, National Association, London Branch, as dealer, incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .17 | Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Bank of America, N.A., as dealer, incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .18 | Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Wachovia Bank, National Association, as dealer, incorporated by reference to Exhibit 10.7 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
Table of Contents
|
Exhibit
|
Description
|
|||
| 10 | .19 | Warrants Confirmation, dated June 4, 2009, between Exterran Holdings, Inc. and Credit Suisse International, as dealer, incorporated by reference to Exhibit 10.8 of the Registrant’s Current Report on Form 8-K filed June 10, 2009 | ||
| 10 | .20** | Agreement and Plan of Merger, dated as of February 5, 2007, by and among Hanover Compressor Company, Universal Compression Holdings, Inc., Iliad Holdings, Inc., Hector Sub, Inc. and Ulysses Sub, Inc., incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed August 20, 2007 | ||
| 10 | .21 | Amendment No. 1, dated as of June 25, 2007, to Agreement and Plan of Merger, dated as of February 5, 2007, by and among Hanover Compressor Company, Universal Compression Holdings, Inc., Exterran Holdings, Inc. (formerly Iliad Holdings, Inc.), Hector Sub, Inc. and Ulysses Sub, Inc., incorporated by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K filed August 20, 2007 | ||
| 10 | .22 | Amended and Restated Contribution, Conveyance and Assumption Agreement, dated July 6, 2007, by and among Universal Compression, Inc., UCO Compression 2005 LLC, UCI Leasing LLC, UCO GP, LLC, UCI GP LP LLC, UCO General Partner, LP, UCI MLP LP LLC, UCLP Operating LLC, UCLP Leasing LLC and Universal Compression Partners, L.P., incorporated by reference to Exhibit 2.1 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed July 11, 2007 | ||
| 10 | .23 | Omnibus Agreement, dated October 20, 2006, by and among Universal Compression Partners, L.P., UC Operating Partnership, L.P., UCO GP, LLC, UCO General Partner, LP, Universal Compression, Inc., Universal Compression Holdings, Inc. and UCLP OLP GP LLC, incorporated by reference to Exhibit 10.2 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed October 26, 2006 | ||
| 10 | .24 | First Amendment to Omnibus Agreement, dated July 9, 2007, by and among Universal Compression Partners, L.P., Universal Compression Holdings, Inc., Universal Compression, Inc., UCO GP, LLC, UCO General Partner, LP and UCLP Operating LLC, incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed July 11, 2007 | ||
| 10 | .25 | First Amended and Restated Omnibus Agreement, dated as of August 20, 2007, by and among Exterran Holdings, Inc., Exterran, Inc., UCO GP, LLC, UCO General Partner, LP, Exterran Partners, L.P., EXLP Operating LLC and Exterran Energy Solutions, L.P. (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended), incorporated by reference to Exhibit 10.20 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 | ||
| 10 | .26 | Amendment No. 1, dated as of July 30, 2008, to First Amended and Restated Omnibus Agreement, dated as of August 20, 2007, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., EXLP Operating LLC and Exterran Partners, L.P. (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended), incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 | ||
| 10 | .27* | Second Amended and Restated Omnibus Agreement, dated as of November 10, 2009, by and among Exterran Holdings, Inc., Exterran Energy Solutions, L.P., Exterran GP LLC, Exterran General Partner, L.P., EXLP Operating LLC and Exterran Partners, L.P. (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended) | ||
| 10 | .28 | Office Lease Agreement by and between RFP Lincoln Greenspoint, LLC and Exterran Energy Solutions, L.P., incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed August 30, 2007 | ||
| 10 | .29† | Exterran Holdings, Inc. 2007 Stock Incentive Plan, incorporated by reference to Exhibit 10.16 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 | ||
| 10 | .30† | Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed March 26, 2009 | ||
| 10 | .31† | Amendment No. 1 to Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Annex A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed March 26, 2009 | ||
Table of Contents
|
Exhibit
|
Description
|
|||
| 10 | .32† | Amendment No. 2 to Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .33† | Exterran Holdings, Inc. Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.16 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .34† | First Amendment to Exterran Holdings, Inc. Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .35† | Exterran Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .36† | Exterran Holdings, Inc. Deferred Compensation Plan, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .37† | Exterran Employees’ Supplemental Savings Plan, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .38† | Exterran Annual Performance Pay Plan, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .39† | First Amendment to Universal Compression, Inc. 401(k) Retirement and Savings Plan, incorporated by reference to Exhibit 10.2 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed August 3, 2007 | ||
| 10 | .40† | Amendment Number Two to Universal Compression Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed August 3, 2007 | ||
| 10 | .41† | Form of Incentive Stock Option Award Notice, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .42† | Form of Non-Qualified Stock Option Award Notice, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .43† | Form of Restricted Stock Award Notice, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .44† | Form of Restricted Stock Unit Award Notice, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .45† | Form of Grant of Unit Appreciation Rights, incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 | ||
| 10 | .46† | Form of Amendment to Grant of Unit Appreciation Rights, incorporated by reference to Exhibit 10.3 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed August 3, 2007 | ||
| 10 | .47† | Form of Second Amendment to Grant of Unit Appreciation Rights, incorporated by reference to Exhibit 10.35 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .48† | Form of Directors’ Non-Qualified Stock Option Award Notice, incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 | ||
| 10 | .49† | Form of Directors’ Restricted Stock Award Notice, incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 | ||
| 10 | .50† | Form of Amendment to Incentive and Non-Qualified Stock Option Award Agreements of Ernie L. Danner, incorporated by reference to Exhibit 10.4 of Universal Compression Holdings, Inc.’s Current Report on Form 8-K filed August 3, 2007 | ||
| 10 | .51† | Form of Indemnification Agreement, incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .52† | Consulting Agreement between Exterran Holdings, Inc. and Ernie L. Danner, dated August 20, 2007, incorporated by reference to Exhibit 10.17 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .53† | Form of Exterran Holdings, Inc. Change of Control Agreement, incorporated by reference to Exhibit 10.19 of the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
Table of Contents
|
Exhibit
|
Description
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| 10 | .54† | Form of First Amendment to Exterran Holdings, Inc. Change of Control Agreement, incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 | ||
| 10 | .55† | Change of Control Agreement with Ernie L. Danner, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed October 10, 2008 | ||
| 10 | .56† | Form of Amendment No. 1 to Hanover Compressor Company Change of Control Agreement, incorporated by reference to Exhibit 10.20 of Exterran the Registrant’s Current Report on Form 8-K filed August 23, 2007 | ||
| 10 | .57† | Amendment No. 2 to Hanover Compressor Company Change of Control Agreement with Norman A. Mckay, incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 | ||
| 10 | .58† | Letter dated March 15, 2001, with respect to certain retirement benefits to be provided to Stephen A. Snider, incorporated by reference to Exhibit 10.43 of Universal Compression Holdings, Inc.’s Annual Report on Form 10-K for the year ended March 31, 2001 | ||
| 10 | .59† | First Amendment to Incentive Stock Option Agreements with Stephen A. Snider, incorporated by reference to Exhibit 10.44 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .60† | First Amendment to Non-qualified Stock Option Agreements with Stephen A. Snider, incorporated by reference to Exhibit 10.45 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .61† | First Amendment to Restricted Stock Agreement with Stephen A. Snider, incorporated by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .62† | First Amendment to Exterran Holdings, Inc. Award Notice for Time-Vested Incentive Stock Option for Stephen A. Snider, incorporated by reference to Exhibit 10.47 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .63† | First Amendment to Exterran Holdings, Inc. Award Notice for Time-Vested Non-qualified Stock Option for Stephen A. Snider, incorporated by reference to Exhibit 10.48 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .64† | First Amendment to Exterran Holdings, Inc. Award Notice for Time-Vested Restricted Stock for Stephen A. Snider, incorporated by reference to Exhibit 10.49 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .65† | Second Amendment to Grant of Unit Appreciation Rights for Stephen A. Snider, incorporated by reference to Exhibit 10.50 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 | ||
| 10 | .66† | Form of Exterran Holdings, Inc. Award Notice for Time-Vested Incentive Stock Option, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .67† | Form of Exterran Holdings, Inc. Award Notice for Time-Vested Non-Qualified Stock Option, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .68† | Form of Exterran Holdings, Inc. Award Notice for Time-Vested Restricted Stock, incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .69† | Form of Exterran Holdings, Inc. Award Notice for Time-Vested Restricted Stock for Director, incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .70† | Form of Exterran Holdings, Inc. Award Notice for Time-Vested Stock-Settled Restricted Stock Units, incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .71† | Exterran Holdings, Inc. Award Notice for Time-Vested Incentive Stock Option for Stephen A. Snider, incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
Table of Contents
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Exhibit
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Description
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| 10 | .72† | Exterran Holdings, Inc. Award Notice for Time-Vested Non-Qualified Stock Option for Stephen A. Snider, incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .73† | Exterran Holdings, Inc. Award Notice for Time-Vested Restricted Stock for Stephen A. Snider, incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .74† | Form of Consulting Agreement by and between Exterran Holdings, Inc. and Stephen A. Snider, incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 | ||
| 10 | .75† | Amendment and Discharge of Change of Control Agreement by and between Exterran Holdings, Inc. and Norman A. Mckay, incorporated by reference to Exhibit 10.12 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 | ||
| 21 | .1* | List of Subsidiaries | ||
| 23 | .1* | Consent of Deloitte & Touche LLP | ||
| 31 | .1* | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31 | .2* | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .1* | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .2* | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
| † | Management contract or compensatory plan or arrangement. | |
| * | Filed herewith. | |
| ** | The registrant hereby agrees to supplementally furnish the staff, on a confidential basis, a copy of any omitted schedule upon the staff’s request. |
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules